I prefer the 3.5 version on a philosophical level. However, I'm not fond of a couple of the implementation details:
1) Small missile weapons don't have the range increment reduced, when logically they would.
2) Small characters suffer both a Strength penalty and a damage reduction due to the size of their weapons. Consequently, Small warrior-types really don't seem like a viable character option (in a standard, reasonably-optimised group). Actually, my preferred fix for that is to get rid of the Strength penalty for Halflings and Gnomes (no adjustments for Halflings, +2 Con/-2 Wis for Gnomes), but that's another topic.
3) The rules for weapon equivalencies by size (from the DMG) should almost be standard, except that they only fit for some weapons. I can see that a small longsword is not the same as a medium shortsword, but perhaps a small longbow is the same as a medium shortbow?