The Smallest Digicam on Retail?
It's barely larger than its own USB plug!
The Chobi Mini Digital Camera can capture 1280 x 960 AVI videos at 30 frames per second, and take 2048 x 1536 JPEG photos (around 3 megapixels). Not really impressive off the bat, until you realize that the Chobi is smaller than an eraser.
At 4.4 x 2.9 x 1.2 cm (length, height, and depth respectively), the Chobi Mini nevertheless has enough space to accommodate microSD memory cards (8GB max), and even a voice recorder. Made by Japanese manufacturer JTT, the camera lacks the LCD viewfinder that's a standard today, but makes up for this somewhat with an old-school viewfinder.
The JTT Chobi Mini can plug into Mac OS and Windows PCs via USB. It comes with a one-month warranty(!) and a Japanese(!!) manual, at a very reasonable price of 13850 yen (a bit below $150). Currently available from Geek Stuff 4 U.