We discuss the challenges encountered when scaling down photonic waveguide devices, and demonstrate possible solutions in silicon-on-insulator (SOI) platform. First, sources of waveguide birefringence such as waveguide geometry and stress in the waveguiding layer are discussed. Birefringence sensitivity to inaccuracy of waveguide dimensions is compared for different waveguide geometries, including trapezoidal and rectangular cross-sections. Results show that trapezoidal waveguides are more robust, which makes fabrication tolerances less stringent. Methods for minimizing the waveguide birefringence using stress induced by an over-cladding dielectric film, and by inducing form birefringence through deposition of thin layers of high and low refractive index materials, are discussed. Compact arrayed waveguide grating (AWG) devices are presented, with internal loss of -5.9 dB, crosstalk better than -20 dB, and polarization dependent wavelength shift of <0.05 nm. We discuss and quantify the sources of loss and crosstalk in our AWG devices, and review the methods we have developed for compensation of the polarization dependent wavelength shift, including etched compensator and silicon-oxide-silicon (SOS) compensator. The latter exploits form birefringence of a thin buried oxide layer sandwiched between silicon waveguide core and a silicon over-layer, and is simple to fabricate by standard oxide and amorphous silicon or polysilicon deposition techniques. The calculated loss penalty of the SOS compensator is less than 0.2 dB for both TE and TM polarization.