When Guild gets back to the group display.....

Either use a variable Font size with a lower limit and step down the font based on number in group.
(Currently it switches to a micro sized font if the group size is bigger then 8)

or perhaps better/easier

Install scroll bars with bind-able commands and fix/limit the group display size
ie.
GroupScrollUp
GroupScrollDown
GroupScrollLeft
GroupScrollRight

Also if the group display is disabled (Linux?) the normal ship display is not shown and nothing is displayed

Eh i dont really think it's too small. The numeric percentages of ship health it switches to in small-mode is more annoying then the font size.

well some of us have bad eyes... :P 1/8 inch tall lettering is just not easy to read anymore

So... resize your HUD. That feature is in there for a reason! :P

It is a bit too small in comparison with the rest of the HUD text. Maybe if it was the same size as the chat window text instead?

Normally it is the same size as my chat text - when the group reaches 9 members it switches to almost a quarter of the normal size.... way too small

Right, but it has a bar graph under it and takes up a lot of space.
Maybe if the condensed version put the bar graph behind the text like TargetLess does instead of switching to a tiny font and percentages?