How well do differently-sized units of Fire Warriors work?
Six edition has had a big impact on fire warrior squads.  While some of the points in the article user1873 links to in his answer are still valid there are other factors that should be considered.

The short answer is you probably want to go either min or max on squad size.  Other numbers are acceptable but situational(like if you got some extra points and no better option to spend them on; going from 6 to 8 guys in a squad is OK to do).

Here's some changes in 6th edition that will have an effect on whether to go min or max.   

Transports

Transports for units in the new edition have lost some usefulness. In 5th, taking a min squad to get a transport was often a no-brainer. Even a transport with as limited offensive punch like a Devilfish was worth it due to the overall strength of vehicles in the last edition.

Now transports are not scoring or denial units.  Even squads inside can't score or deny.  That means to take an objective, you will need to disembark.  That's a difficult thing to do effectively when you have a very fragile 6 man unit inside. 

Overall the game is lighter on scoring units, so you can't treat them as transport upgrades anymore.  While the Devilish is one of the more survivable transports in the game right now, a Tau army needs to prioritize on high firepower and scoring units first.

Rapid Fire Weapons

The big change to rapid fire weapons is that they can fire up to their full range even when moving.  This gives Firewarriors a nice 36" reach on a given turn.  With this kind of range, Firewarriors don't have to rely on transport mobility to effectively engage targets.

Wound allocation

Wound allocation is now done against closest models.  This means you can use drones or attached battlesuit commanders(preferably with Iridium Armor and a pair of shield drones)  to soak incoming fire.  This is a big survivability boost, making large squads hard to kill and great at camping objectives.

Morale

Units can now almost always regroup.  This makes playing the morale numbers game much less important.   The new Cadre Fireblade and updated Ethereals also help keep your units around thanks to higher leadership and re-rolls. 

Allies

Tau troops aren't great, but fortunately now you can bring someone else's much better troop options along to the party.  You'll get much better ROI for your points with a maxed out Marine tactical squad versus a maxed out Firewarrior squad.

Conclusion
Updated for the new Codex

The new codex does increase the play-ability of Fire Warriors, but they are still defensively a weak unit. With the slight points decrease and the extra shots you can get from Ethereals and Fireblades, there's more reason to max the squad size now than to minimize it.  

I still think it is better to leverage ally troops to score and deny objectives.  That is if your ally's troops are better.  (Though you should pick an ally option with better troops IMHO.  Something like Space Marines, Grey Knights, Okrs, or Necrons.)

I would suggest going max on the squads.  Upgrading to the shas-ui is no longer necessary since you can stick an Ethereal of Fireblade to the unit and get a bigger efficiency boost. I could see the Devilfish having use in some list, but overall you should probably stick to foot squads.