Despite ff and dolphin being open and the panel being allowed to expand up to 98% height the task manager doesn't use available space but squashes icons to be totally unusable.

Oh, I forced a single row setting in task manager settings. Click on the image below to see what I mean.



EDIT:

Forgot, KDE 4.8, kernel 3.2.2-1 + problem does not occur using fancy tasks

Is this bug-worthy?

where's the "available space"? you mean below the cashew? cause if that's it that's not right, the cashew should be a the very bottom of the panel

what happens if you widen the panel? do the system tray icons double as they do (sometimes) when the panel is horizontal?

Correct, available space is below the cashew.

If I widen the panel systray icons appear in two/three columns but the task manager remains squashed up.

Odd, isn't it...

if you click the cashew and resize the panel does the cashew go to the bottom as it should? if not seems there a bug.

I just kinda dup'ed this by adjusting the bottom of my panel up and then back down and the cashew refused to go back down all the way - resolved it (at least for me) by changing the alignment to center than bottom and now cashew is back to where it should be.

I tried to dupe it as well but task manager was insistent on remaining as tiny as possible.

As I'm no expert on ~/.kde4/share/config/plasma-desktop-appletsrc I will forget this for now and use the fancy tasks task manager instead.