Good points, all around. As you might know, I tend to treat the rules as an abstraction of fantasy tropes, not as the (meta)physics of my fictional world. That said, I see two options:
1) Let Polymorph change size by more than 1 category.
2) Restrict Polymorph's forms to within one size of the original.
Let's look at the implications of both:
1: This is the more powerful version of Polymorph.
It allows for many, many more forms, thus opening the door to abuse.
It also allows for more flexibility, and therefore more fun for the players.
2: This less powerful option is easier to adjudicate, as there are fewer forms available.
It severely limits the utility of the spell for small casters. Polymorph is often used to assume a combat form, and most good combat forms are Large.
Human wizards in fantasy literature are constantly turning into birds to travel, scout, etc. This version would prevent a Medium wizard from turning into a Tiny bird. That's dumb.
Finally, Iku posted something that convinced me Thanee's right:
Iku Rex said:
Let's see what you consider a "newer, more inclusive text" with regards to size.
The new form must be within one size category of your normal size. --alter self
You can’t cause a subject to assume a form smaller than Fine, ... -- polymorph
The way I see it, the new/different information in Polymorph
replaces and supercedes the corresponding information in alter self. It's not like the rules in Polymorph are there to further limit Alter Self.
Therefore, the limit of "You can’t cause a subject to assume a form smaller than Fine" replaces "The new form must be within one size category of your normal size". The "smaller than fine" limit really isn't a limit at all; it allows for any size category to be assumed.
Spider
By the way--where the heck in Hypersmurf through all of this? What do we pay him for, anyways?
