It took me some time (as I built the test and validation scripts iteratively) to setup a test to evaluate the ALTER TABLE ... SHRINK SPACE command available in Oracle 10g. I ran these tests (see the document) on 32-bit 10.2.0.3 on Windows XP on my home PC.
(I couldn't extend the tests to larger sizes as "testing the tests" themselves would take signficant time on my PC !).
It seems as if, besides, reorganising the usage of blocks within a table, the command can also identify and drop extents (seems to have been intelligent enough to drop the last 3 extents although rows had been deleted from random blocks across multiple extents).
Update : There is an Oracle Bug logged for the high Undo and Redo generated by an ALTER TABLE ... SHRINK SPACE command. Bug #3888229 "HUGE REDO AND UNDO GENERATED DURING A TABLE SHRINK OPERATION. "
Update 10-Mar-08 : I have added Block, Redo and Undo statistics for the SHRINK operation. These indicate signficant activity.
I've also run a test with Uniform Size 128K instead of AutoAllocate. At the current table size, there is no significant difference.
The document (link above) has been updated.