Using Skype 188.8.131.527 on mac min with Lion. I used to be able to drag my video window and make it larger but now it's small and seems to be without any means of adjustment.
Clicking on your picture-in-picture once will toggle it between small and very tiny. If it's already very tiny clicking once will toggle it to small.
There's no other way to adjust the size of the PIP in the current version. This is a bug (or maybe a bug by design). There's a topic about it on the Skype developers' Jira forum. Feel free to add a comment there is you want to: https://jira.skype.com/browse/SCM-958
I'm also having this problem, in Skype 184.108.40.206 for Windows. My picture of myself is so tiny I can barely see it, let alone tell whether I have the camera pointed at what I'm trying to show my contacts. Does anyone know whether there are any plans to fix this, and in what version?