Hello Sendric,
Thank you for your answer. I figured it out.
"Permanent adjustments" for size category doesn't just adjust the size category of the character but also all weapons. Basically I was giving a medium sized dwarf small weapons and then shrinking him and the weapons with the adjustments. So the dwarf goes from medium to small and the weapons go from small to tiny. It works if I give him medium weapons and then use the adjustment to shrink them all at the same time.