Why are components so big?

There are small DVD players.

I personally perfer standard size components though, in black, because they work better if you need to stack them.

Receivers need to be fairly large for heat management purposes. Receivers with class D amps can be, and are made, smaller.

Well with home audio you really have one big thing at work that prevents excessive miniaturization for most receivers. With a receiver that has an amp or several amps, Class A or A/B amps are not very efficient (and this is most likely what they will be using). This means they are going to draw alot of power and convert quite a bit of it to heat to produce your signal. To disperse the heat you need heatsinks and other cooling considerations. This is going to require a larger unit to provide proper cooling. You could probably find some class D amps, however my only experience with Class D amps has been car audio subwoofers. The reason we went with those was because they were very efficient and did fine for low frequencies. Perhaps some class D amps exist for home audio at normal frequencies, but as I remember it, they did not work well for such applications in car audio.

As far as how big a DVD player is compared the the media. Let's consider this, if your putting together a rack, wouldn't you prefer to have most of your equipment to be of similar sizes in case you have to stack some units. You can certainly find non-standard sized DVD players quite easily (Wal-Mart comes to mind) but then it might look odd in your AV rack. Is that something purely subjective, yes, but it is a consideration nonetheless. Another thing to consider is that if these are sealed units or units with very little ventilation, the more air inside the case and the more surface area on the case will help disipate the heat of the scaler/decoder chips, the power supply, and the drive itself.

I could be wrong on any points but thats how I see it.

There are certainly full frequency class D amps. Some people like them, and some people don't. I have read where a few people think class 'D' amps sound sterile. That sounding suspiciously like the arguments made against all digital audio. Because some people distrust all "digital" audio and think of class D amps as digital, I would suspect a bias.

Even past the amp issue, a huge reason why receivers can't shrink is because they're the hub of a home theater system. Everything runs through them. If you look at the back of any receiver, it's crammed with inputs. Can't really shrink it without sacrificing connectivity.

Well like Michael said, you CAN get amps that are much smaller and cooler. However, most audiophile and higher end audio equipment is going to stick with tube, class A, or Class A/B technology. The technology might improve a little over time and occasionally get a bit smaller but you still have relatively inefficient amps that generate alot of heat. How much heat you need to disipate is going to determine how much heatsink area they will need to cool the components. Yeah you could get by with smaller heatsinks but then you need compensate with fans. Fans obvious cause some noise (if you don't have them hidden in a closet), something most of us would like to avoid as much as possible. Plus, with an active cooling device (fan), you have introduced an additional point of failure into your system. If the cooling fan stops working, are you going to be ecstatic when your amp either shuts down or dies completely due to overheating?

By sticking with passive cooling as much as possible you create a system that is generally more reliable.

Think of it this way, how big would the Xbox 360 have to REALLY be to cool itself effectively and not sound like a jet getting ready to take off. To me, this is an example of what happens when you try to put a powerful device in a small package. They cut the size of the heatsinks and felt that they could add enough active cooling in to the mix to achieve okay results. Obviously they were cheating a little bit even then as the newer boxes have more heatsink material in them than previous units. I'd rather pay the space penalty than have my equipment fry itself.

Personally I would not like smaller components, I would not care for a bunch of dinky components sitting on a shelf or whatever Reminds of some MINI systems I have seen, very cute, if you want the look of doll house.
I am sure you are right and there are people who would prefer it, most of them also don't care what it sounds like as long as it is better then their TV set, but either way, I think there is a prefference for both sides in this question.

As for preference, I'd go for unseen components, regardless of size, with only a readout to confirm my remote control commands. The Meridian Ref 861, despite its bulk, approaches this with its relatively monolithic front panel and large display. For a while, I had an all-Meridian system where one need have only the speakers and remote control in in the room. (The speakers had sensors for the remote and a usable display.)

There are also powered speaker AV setups, like Bose and B&O. There's certainly an argument that can be made for putting your amps in the speakers, and building a compact control center.

Of course, the downside is a proprietary system.

There's no need to regard powered speakers as proprietary systems since they will work with almost any analog source. In fact, the Meridian DSP speakers will work with non-Meridian digital sources.

I wouldn't be opposed to smaller components as long as there was a somewhat standard size as now. In other words keep a same standard width & similar depth & vary the components hight to accommodate its internals. Maybe go from the standard 17"width down to only 12" or so. I don't mind there being differences in height between components but when their all different in width & stacked together it just looks crappy IMO. This would also be assuming that the component is not just gaining height to slim the width
But on the other side I could see this as an excuse to drive cost up on components.