well, I've only done a single set of variations on a pre-existing tune - the Country Gardens one you proposed last year.
my approach was that the first few variations were very close in shape and length to the original folk tune. as the material grew further afield from the source material, the variations also grew progressively longer.
there are so many approaches however that are just as legitimate.
if a tune is very short, variations can be based upon phrases in the original rather than the entire tune.
repetition, as you commented, is equally valid.
personally, I like to see a set of variations create an overall form/structure. I'd rather hear a set of variations that require a complete listen, than a set of variations where any single variation can be taken out of context and be "complete".
take as example of this last approach the Rachmaninovv "Rhapsody on a theme of Paganini". There is an implied 3-movement structure, paralleling that of a concerto.