Me too. So I decided to try it.
I put rub-ons from two manufacturers (Making Memories and Cosmo Cricket) on shrink plastic from two manufacturers (Grafix and OTC). I made sure the rub-ons were thoroughly adhered to the shrink plastic and had no flaws, then followed the instructions for proper shrinking.
Here are a few of the pieces I made:
I was expecting quite a bit of ripping and distortion. Indeed, some of the rub-ons did rip and/or distort, but I was pleasantly surprised to see that it was minimal. In both cases the words look pretty good. There didn't seem to be any difference between manufacturers; instead, the heat of the oven (and thus the rate and direction of shrinking) seemed to be what caused the variation. It was also crucial that the rub-on was applied thoroughly. If there was even a tiny bit that wasn't burnished properly, that area ripped.
This was an interesting experiment. I don't know that I'd try it again. It would make a lot more sense to apply a full-size rub-on to an already-shrunk tag or charm. But if I needed to make an existing rub-on smaller, this is the way to do it.