I think it's mostly for comic relief. Check out this thread: http://community.vugames.com/WebX?128@2 ... 1@.efdb038
As far as I'm aware, shrinking doesn't do anything, apart from Canis said - comic relief. Oh, and to enter the Thieves Cave. It may have other uses, but I doubt a prowling bonus is one of them. I believe (correct me if I'm wrong someone) that the halfling from the mysterious gem is small because he's scripted to be that way, not because he's shrunk. If you're really desperate to find out, save up a few character points, save, invest in shrink, and play around with it.