In some versions of KDE (like 4.2.2) there is a bug in knote that prevents users from resizing the note. The bug is fixed in 4.2.3, but if you are still using 4.2.2 you still can resize it.
Just use Alt key in combination with right mouse button to resize any window, including knote. BTW, Alt-LeftMouseButton allows you to move the window from any point within the window. Of course you can customize this combination of keys if you want.
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