I've noticed this also. However, it seems like the medium fry is more like the small fry of the past.
Just prior to reading this post, I was at Taco Bueno and needed a lid for what I thought was my medium cup - only the mondo sizes were at the station, so I asked if they had any more medium cup lids, and the guy says "Sure". Comes back with a stack of lids, looks at my cup and says, "Oh, you need a small lid." I was dumbfounded that 20 ounces could somehow be considered small.
Elaine: Uh, could I have a medium Diet Coke? Clerk: Do you want the Medium size or the middle size? Elaine: What's the difference? Clerk: Well, we have three sizes. Medium, Large, and Jumbo. Elaine: [momentarily perplexed] What happened to the small? Clerk: There is no small. Small is Medium. Elaine: What's... medium? Clerk: Medium is Large, and large is Jumbo. Elaine: Oh-kay. Gimme the large. Clerk: That's medium. Elaine: Right. Yeah. [fearing the answer] Could I have a small popcorn? Clerk: There is no small. [flash of perky inspiration] Child-size is small. Elaine: What's `medium'? Clerk: Adult. Elaine: Do adults ever order the child-size? Clerk: [chuckling] Not usually. Elaine: [laughs appreciably] Okay, gimme the `adult'. Clerk: Do you want butter? Elaine: Is it *real* butter? Clerk: [perkily] It's butter-*flavored*! Elaine: [exasperated] What is it made of? Clerk: [perkily] It's yellow!