I can confirm this bug/issue. Happened after upgrade to Hardy from
Gutsy. Changing the panel font or changing the icon scheme ( even if I
use scalable icons) does not help. gconf-editor says that the minimum
panel size is determined by the font and 'other indicators'. Don't know
what those 'other indicators' are.

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gnome main menu applet makes panel size to large
https://bugs.launchpad.net/bugs/223075
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