Thanks! Ha, that sudden inner monologue is exactly the case I had in mind.
For text that changes length, I'd keep the main dialogue box fixed and split the text into pages, ideally at sentence ends, with a small "continue" arrow. The layout stays calm, the box never covers the characters, and the player reads at a steady pace. A box that grows with every line makes the whole screen jump around.
Growing makes sense for speech bubbles and short replies: let them expand up to a max height (around 3-4 lines) and page anything beyond that. That's why the frames in the kit stretch cleanly in both directions, so you can do either.
Good luck with the project!