I'm not sure if mine is too big or not. I got one like this:
in black but with a hood from macys. i got the smallest size- 4. It seems kinda big though, and i'm trying to lose about 5 lbs as well. If i stretch my arms out, there is about two inches extra on each size. The sleeves are also about an inch away from my knuckles, or maybe an inch longer than they are on the model, which is fine until i put my hands in my pocket, then the sleeves crinkle up. Help- how does your jacket fit!
I would return it. It would sorta look like your wearing mommy's coat if it's too big. I like my jackets to be fitted. If you pull back the extra material you see how much better it looks. More difficult to find wool ones in sizes smaller than 4/6. I even tried ones on at Jcrew and I thought the extra small was even too baggy for a regular extra small (mostly too much rooms on the arms). You might have better luck at Nordstroms.
i actually don't think that sounds too bad, because you are probably going to want to layer sweaters and heavier items underneath a coat like that anyway. the sleeve length doesn't sound too bad, but sleeve cuffs are actually one of the easiest things for a tailor to fix, and not too much $. i would err on the side of a coat being a little too big than too tight to wear whatever you want underneath, because then it will be more versatile.
*forgot to say--the main thing with coats is the shoulders--if the shoulders jut out well beyond your own shoulders, you will look like you are wearing mommy's coat. if the coat fits fairly well in the shoulders, the rest is totally alter-able.