Gnomes.
As things stand, they have a more restrictive favoured class than anyone else (Illusionist as opposed to Wizard), a weird grab-bag of bonuses (+2 to Alchemy, Listen, Illusion saves, Constitution, ) which don't really synergise well IMHO.
Compare to halflings, whose +1 size modifier to AC and attack synergises with their +2 Dex, +4 to Hide with their +2 racial Move Silently bonus, favoured class (rogue) plays to the attribute and skills they get bonuses in, etc)
Maybe it's just the power-gamer in me, but whenever I think of making a small-size character and do the numbers, I always come out thinking the halfling build is a lot better than the gnome build (the introdcution of Tallfellow/Deep/Strongheart variant halflings just makes the imbalance worse.)