Notify-osd should check for XFCE's font settings as it checks for GNOME's.
I am using Xubuntu karmic, and after setting my fonts to Sans 8 and DPI 73, notify-osd settings remaind huge (after logging out obviously).
Now, searching in some other bug reports, i installed gconf-editor and editted GNOME's font settings to match my XFCE settings and relogged, now my notify-osd fonts have a correct size and are coherent with the desktop.
Notify-osd should check for XFCE settings if GNOME is no installed, so it is compatible with XFCE, cause i dont believe it should be that XFCE settings also change GNOME one's. Anyways notif-osd should somehow be compatible with XFCE.
I dont' believe this to be so hard of fixing, but i dont know, you tell me.