When "show transform controls" is checked and I have a layer selected, a white border shows at the edges of the layer with small boxes at the corners and midpoints. Hovering above one of these boxes changes the cursor into the "scale arrow." Traditionally, clicking the border with that arrow and holding down the mouse button allows you to scale down the layer by dragging the mouse.
In Photoshop CS5 (and perhaps other new versions), clicking the border and holding the mouse button has no effect. Dragging the mouse reverts the pointer into the "selection arrow" and drags the image across the screen instead of resizing it. This is because when you click on the border, it suddenly expands into a larger area. Only by clicking once and then letting go can you move your mouse cursor to the newly defined edge and then scale down the image. This is incredibly frustrating and adds a second, unneeded step in the process. Because I instinctively try to grab hold of the border as is, I usually wind up dragging the image by mistake.
What's up with this?
Text layers seem to work the same way as other layers on my machines and yes with text I see a border in the controlls.
The Shift Ctrl and Alt keys also act as modifiers. Shift constrains the scale, Alt Tramsforms from the center and Ctrl can distort the tramsform.
I just tried it with a text layer as well... No problems here.
I'm thinking something may be wrong with your display driver.
Try this: Edit - Preferences - Performance, disable OpenGL Drawing, restart Photoshop, and test again.
If the problem is eliminated, visit the web page of the maker of your video card and look for an updated display driver to match your hardware and OS. Once installed, re-enable OpenGL Drawing, restart Photoshop, and retest.
One last thought...
Are you sure you haven't "baked" the layer on which you're working into pixels into a higher layer, which is now obscuring the text layer? It's almost hard to imagine the resizing rectangle could be moving without the contents changing.
Sometimes "Smart Objects" don't show the change until after the transformation has been committed. Also it could be that they are not putting their mouse on a corner handle, and that's why it's just moving the position.
Well, the problem is that the corner handles move when initially clicked on because the transform controls box expands unexpectedly, so if I click and drag, the cursor turns into a "move" arrow instead of scaling arrows because it's no longer on a corner box being in the same spot where the box used to be. The expansion of the transform box tends to happen moreso vertically.
Like I said, it happens in varying degrees on every text layer I create in any document. Unfortunately the "reset character" suggestion didn't resolve the problem. I can't imagine that it's a font issue either, since it happens even with standard fonts like Arial. I haven't yet figured out what causes some text layers to expand more than others. It also happens whether or not I'm using a predefined text area.
I'm going to open up CS3 on my laptop and compare the results between versions. Again, thanks for all the replies.