I think this could work really well, and had a similar thought just the other day.
My main concern is that I personally would not want to make the mathematical adjustments to all those monsters (subtracting 1/2 the monster's level from all of its attacks and defenses and skills), just because I am lazy and hate basic arithmetic. ;}
Doing this still produces monsters that scale by level because a monster's attack and defenses are based on its level NOT half its level! Why the discrepancy between monsters and PCs? To account for magic items, ability score increases, feat bonuses, paragon path features, and higher-level powers (better buffs and debuffs). If players still get those things, they will still be stronger at higher levels and monsters need to be tougher to compensate.
As for your issues:
XP: Higher level monsters are still tougher due to the monster-PC discrepancy (above) and due to having weird abilities (and the expectation that the players have the capacity to prevent those abilities). So there should still be some discrepancy in XP due to level, but maybe less than there is now. As a consistent rule of thumb for building encounters, I would count each monster as 1/2 its level for XP purposes (a level 9 monster would count as a level 4 and only be worth 175 XP) since that is what you have done, effectively, to their attacks and defenses. I'd also treat the PCs as half their level when determining encounter XP budgets. Then I'd just cut all the numbers on the XP-needed-to-level chart in half. This will produce a MUCH faster advancement at low levels (practically double-speed) but it will slow more at higher levels.
Magic Items: If you still have them in the game, then yes, they will increase the character's attacks/defenses gradually over their careers. They will also be WAY more valuable because there are a lot fewer ways to naturally increase attacks and defenses. But I think the system still "works" and players like getting magic items. I wouldn't adjust anything unless it became a problem.
Skill Challenges: I think you have the right of it. The DCs don't scale linearly in order to account for magic items, feat and power bonuses, etc. But if you just subtract 1/2 level from each DC you can cancel that factor while leaving the others alone.
Hit Points: This is where the system gets interesting and where I think it really works. This house rule makes it easier to take a higher-level monster and use it, unchanged, as an elite or solo in a lower-level encounter. You can also make things into minions just by zapping their HP (in the normal rules, minion defenses are also a big issue). The exact same werewolf may be a level 3 solo, a level 5 elite, a level 8 brute, or a level 12 minion (just drop his HP to 1). It sounds like this would be really fun for your players -- it allows them to encounter "level 10 bandits" throughout their careers while seeing said bandit go from a serious threat to a laughable one, giving a real sense of accomplishment.
Note that higher-level powers do more damage to compensate for increased monster hit points. I would not change this one bit. HP and damage would then become the primary reason why higher-level PCs and monsters are, uh, higher level. This is how many action-adventure-rpg video games do it (because in those games the attacks and defenses are based on twitch and player skill rather than stats) and I think it works well because you get much more monster re-use. There are many video games where the level 2 mini-boss later shows up as the level-8 cannon fodder, and it's pretty cool.
(Saving throws get wonky in this situation. You want the "level 3 solo werewolf" to still get the +5 bonus on saving throws. And when the party is level 15, that werewolf should probably be taking a penalty, to make him easier to push off cliffs and so forth. My instinct is that you can probably assign this on-the-fly somewhat. Or you could have a standard system where creatures get a bonus on saves vs. lower-level effects, and a penalty vs. higher-level effects, equal to the difference in level. I tend to think of saving throw modifiers as the HP/damage of non-damaging effects, and against foes of roughly even levels, the whole "1d20 vs. DC 10" thing works well. But if you are routinely up against foes of very different levels, you may wish to introduce that scaling.)
I think you should try this system and let us know how it works!
-- 77IM
