The sample I have shared in my previous post represents the formatting rule dialog that has an expression column.
About your shrinking questions, generally report sections/items can't shrink but can grow. As a workaround our suggestion is to set the corresponding items height to small value in the report's constructor. This way the items/sections and their parent sections/items will grow only when necessary. Check out the following code snippet:
public partial class Report1 : Telerik.Reporting.Report
// Required for telerik Reporting designer support
this.detail.Height = Unit.Pixel(1);
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