The smallest, full-featured Arduino including a USB port is the recently announced Oak Micros om328p Arduino compatible. It is only 1.4" x 0.7" (36mm x 18 mm) which is smaller than the Nano. You can insert the om328p into a standard 28-pin 600mil socket or a breadboard and add your own custom circuitry around it. The om238p has an introductory price of $29.95.
Mike Perks
oakmicros.com