I too am experiencing the same thing. Brand new SP3. Lots of updates installed. I have also installed office 2013 and various other programs. Computer arrived on Tuesday and did its initial updates. I did not seem to have the issue until yesterday when the doc arrived, more updates were installed and I added Office 2013 and the other software. Tuesday was clean unit and initial updates only.
I was unable to successfully install Office, which is a whole other story. I finally thought I had things so messed up that I decided to just start over and have it reset to the way it came from the factory. That worked. In fact, I decided that something was probably wrong from the start because now my keyboard can be moved around with my finger on the desktop, but I could never do that before, even when my keyboard was normal size. I'm happy that it's back to normal, but now I have to work with reinstalling the programs I want.
I did a clean install (reset). The problem was gone. I have slowly started to re-install my software (MS Office 2013, Firefox, Quicken). Everything seemed fine. I installed Smart Notebook 11 this morning and the issue came back. I just uninstalled it (and all support files) and the issue is gone.
Not sure if this is the cause for everyone else, but there seems to be an issue at my end.
Interesting you should say that about Smart Notebook 11. I had installed that software as well. But after my factory reset, I did get it installed again, and this time my keyboard stayed normal. I even upgraded it to 11.2 and it's still OK. Whew.
Marking this topic as SOLVED. Problem seems to be Smart Notebook 11 on the Surface Pro 3, Windows 8.1. It is not known if the software works without causing an on-screen keyboard sizing issue on other platforms or OS Versions.