How permanent is permanent? I'm going to assume that dispelling it isn't an option either because no one will have access to it or because it's instantaneous.
Of course, from the perspective of a really small creature, magic is even more powerful because spell ranges and areas don't scale with a creature's size. Don't get me wrong, they shouldn't because that would be an awful mechanic, but the fact remains that where a typical lightning bolt can hit up to 24 creatures, a Fine creature throwing a lightning bolt into an army of other Fine creatures could hit a hundred times as many.
If you do this, I'd recommend not making them calculate their new stats at Fine size; it'll only complicate things. Scale the challenges instead by filing the serial numbers off of existing monsters and using the party's stats as normal. (You get bonus mileage out of doing this because the wizard can't just use mage hand from an obscene distance to end the adventure early.) Formians are basically already ants, for instance, so just get rid of the spell-like/supernatural abilities. Or you could use the existing zoo full of giant vermin. If they wander outside and run into a mole, pull out the stats for a bulette. They found the wizard's pet cat?
Well...