Comment 2 for bug 944695

Had the same problem and noticed when I looked at the system tray settings under "entries" there were lots of 'phantom'
entries which stops you resizing it down to the real size.

I finally found the answer here:
http://forum.kde.org/viewtopic.php?f=67&t=99419

In summary run the following command...

killall kded4 && kded4 &

It clears out all the entries and allows it to be resized.