I am working with latest source downloaded from postgres org site. I compiled and installed the source with --with-wal-segsize=2, assuming it should give me 4MB size xlog files. (As per the documentation it is a power of 2 value.)
During the compilation the configure script spitted out "checking for WAL segment size... 2MB" - so something was off - and I could not imagine what it is. After successful install and creating database, I still got 16MB files in my pg_xlog directory. That's too bad. I can not seem to be able to follow.
I thought it time to turn on archive anyway. I got 16MB files in my archive location!