mythago
Hero
Let me repeat: I'm not concerned about the power of it so much as I'm concerned about the coolness of it.
Well, YMMV, but I think it's pretty cool.

It's an eerie, unnatural thing--the shadowdancer doesn't just hide, she folds into the shadow, becoming shadowstuff herself.
Think of what a failed Hide check would do. "You suddenly notice that the dwarf's shadow isn't normal--it seems to be overlapped with the shadow of, well, an elf." Much cooler than "You spot an elf hiding in the shadows."
If somebody is watching her do this, it is very, very clear that this isn't just a clever rogue stepping into a dark space.
As for the 'hiding in a pebble' aspect, the alternative is to fuss around with new rules about size and relative volume and time of day. Bo-ring.