Have the option to have more than 3 squares per day
Google+ photos does the 'x more images for this day' quite nicely for the photos auto uploaded from your phone. Presumably the photos you have favourited take precedence for showing large? Maybe if there are lots of favourite photos for a day/month you increase the number shown large for that period?
Jed W commented
Instead of having the extra images appear below the timeline, how about making it so the timeline expands left/right? For instance, say there are 10 images on May 15. Instead of showing just three images on the timeline with the rest in little squares underneath, you could have a little "+" button to expand the timeline and show all the memories that day right next to each other. By default, the timeline should be expanded for that day the first time a user views the new memories. Maybe there could be an "expand all" button if a user wants to be able to see all the memories when scrolling through the timeline. Or, maybe "expand month" to be able to see everything from a certain month.
But, as I said in my recent email to you, the way it is now with the little box you have to click under the timeline to see the rest of the photos is just too confusing and not very elegant. What I've described above would give all memories equal weight without having to go through the cumbersome extra steps of clicking the little box and then clicking the thumbnails to view the rest of the images.
Anyway, hopefully you'll come up with something even better!