I think this is a generic gtk+ bug, as all gnome-power-manager does is gtk_status_icon_set_from_icon_name() and lets the gtkstatusicon code do the size calculation.

Looks like I'm hitting this problem as well.  See:
http://foo-projects.org/pipermail/xfce/2007-May/021396.html

It's even worse in the other direction: if the panel is too small, the icon gets cut off.

A little odd... I'm looking at gtk_status_icon_size_allocate() (in gtk 2.10.12), and I feel like it should be doing the right thing here.  It looks at the allocation it receives, sets the image width and height appropriately, and then, if the size has changed, it runs gtk_status_icon_update_image(), which should redo the sizing.

And indeed, trying it myself (gtk 2.10.11 on Ubuntu), it seems to work.  If I size the panel down to 16 pixels tall, the icon resizes and fits fine.  If I start increasing the panel size, the icon gets larger, though it seems to go through a couple discrete steps, and at some point stops increasing.  I wonder if that's just Xfce's systray implementation, though -- it might not increase the size allocated to items past a certain point.  While the systray itself gets taller as I increase panel height, it only increases in width up to a certain point (maybe around 32px), and then stops.

So, maybe this bug has already been fixed in gtk?  Maybe some tray implementations aren't behaving as expected?