The finder is too useful to turn off, of course. I was hoping that it had a hidden option to stop this behavior, or perhaps a utility had been written to stop it. This seems like one of the features from OS 9 that no one has tried to port to OS X, probably because it wasn't popular.
I wouldn't miss the icons on my desktop since there is already none there.
I can't make the window larger, however. It's the layer palette in Photoshop that is to blame. For some stupid reason all the palettes in Photoshop will always stay one pixel away from the screen edge. This destroys Fitt's law in one of the few places that applications can still use it: photoshop palettes on a second monitor, a fairly common configuration among us designers.