When is a crate too small?

I don't know if you should be using the smaller crate, but I can tell you that my dogs seem to prefer a crate that is too small.  I keep finding them napping in each others crate, always one size smaller!

How old is your dog?  How long has he been potty trained? 
 
The crate size sounds fine.  If he can sit up right and not touch the top I'd be willing to bet it is still big enough.

With my puppy, Mirelle, I have one crate ( a large size, plenty big for her now) and then a Medium one downstairs for bed. In the medium size, she can lay on her side, but not really stretch out. He head doesn't touch the top or anything, it seems to be tall enough but not really long enough for her. The bigger one she stays in when we're gone someplace or if she has to stay in there during the day for any reason. The smaller size is just for sleeping (oh, its also the one I take her places in....when I bring her along and she is crated in the car, etc) and it seems to work ok that way. I was too kind of wondering if the M size is too small for her, but I'm sure I will keep her in it for a while longer, as she's ok with it.

Sorry, I guess that wasn't much help for you, that was just my story!

Haahaa - I'm glad to see that I'm not the only one with these questions!
Winston is 7 months old and potty trained, but still teething.  We used to have him sleep in the big crate in the kitchen at night but one night he figured out how to unlatch the 2 latches and he came upstairs to our room and cried outside the door.  Since then, we've let him sleep in our room, but in his small crate.  Last night I put up "bumpers" like in a crib, and a new pad in his small crate.  I put his stuffed bunny and blankie inside and he wouldn't come out.  This morning I opened the crate door and he just stayed inside relaxing.  I think he might be oke, but like the poster above, he won't be able to really stretch out in there for long.  If that's not a big problem and he can sleep comfortably, then I won't change it.  Eventually, we would like him to sleep in a doggie bed and not in a crate, but until he stops chewing on random things, he's staying in the crate.  We don't quite trust him yet. 

If Winston is housetrained, you can go to a bigger crate.  Otherwise, Mic's advice is solid.