Example: http://i.imgur.com/nfJGF.jpg I am aware that this may be the fault of the packager/maintainer, but neither kde or gnome's menu have a problem resizing icons. I am currently on xubuntu 12.10 with xfce 4.10.0
Probably a duplicate of bug #9615.
This bug is still present under Xubuntu 13.04. You can try it installing webhttrack for instance.
Closing bugs as xfce4-menu-plugin is deprecated/unmaintained/merged into Panel since years.