There are MANY damsels perfectly suitable for a chill reef tank. Most people are just cheapasses and buy the $2 baby dominos and then swear off damsels forever.
Allens damsels are great fish, and not super agressive (unless you've got a seahorse tank or something), however they DIG, way more than my pistol shrimps ever did, pretty annoying. I've only ever kept them singly, can't say for keeping groups.
Some more suggestions for great damsels, that don't turn into 6" gray terrors:
Black bar chromis, can be kept in pairs, or several pairs in a lage tank. Barely hit 2" :
http://www.liveaquaria.com/product/prod_display.cfm?c=15+1634+1848&pcatid=1848
Azure/yellow belly damsels, can be kept in pairs, to about 2.5" (NOT the same as a fiji devil!):
http://www.liveaquaria.com/product/prod_Display.cfm?c=720&pCatId=108
Sapphire damsels, among the very mellowest, can be kept in groups. Pay attention, as there's a similar fish without the black mottling that are pretty mean:
http://www.liveaquaria.com/product/prod_display.cfm?c=15+28+2073&pcatid=2073
A few varieties that get slightly larger (3-4" depending on species), and are slightly less hardy, however still aren't terrors:
Tuxedo damsel:
http://www.liveaquaria.com/product/prod_display.cfm?c=15+28+1966&pcatid=1966
Canary damsel:
http://www.liveaquaria.com/product/prod_display.cfm?c=15+28+1131&pcatid=1131
Starcki damsel:
http://www.liveaquaria.com/product/prod_display.cfm?c=15+28+1511&pcatid=1511
Disclaimer: I'm not affiliated with liveaquaria in any way, just too lazy to search through fishbase.
