In Windows 7, the labels on taskbar icons are hidden by default. This, along with the ability to group icons, is designed to allow more and more program icons to remain pinned or minimized in the taskbar. The obvious disadvantage is that when more than one window of an application is open, such as two or three browser window or explorer window, it requires more clicks to select and open the program. The labels also has the advantage of displaying real time updates on the taskbar such as title of the playing song in music players, download progress etc.
Apparently, both display modes has its own merits and demerits. Taskbar Labels is a small free program that allows you to quickly toggle the labels on and off with a keyboard hotkey. This allows you to switch from icons-only compact view to the traditional one and back to icons view whenever you wish to.
Taskbar Labels is a portable application: just unpack the contents of the zip file to a folder of your choice and double click on the executable. The default keyboard shortcut to hide or reveal taskbar icon labels is Ctrl+F11, but you can change it at will, by right clicking the icon of Taskbar Labels at the System Tray. Aside from showing the labels, pressing the hotkey will also ungroup multiple program windows.