I'd say that I'd have to move most creatures in towards Medium. Maybe dragons and giants are only Huge, instead of Gigantic and Colossal (sp?).
Then I'd work on spells. 0-level spells deal subdual damage. 1st-level spells deal only 1d6 of damage (about the equivalent of a short sword, say). Ramp it up to 5th-level, where you have a chance to actually do some serious damage to the above giants and dragons.
As for number of spells, I'd say have the 1st and 2nd level slots become first level, the 3rd and 4th level slots become second level, the 5th and 6th level slots become third level, the 7th and 8th level slots become fourth level, and 9th level slots become fifth level.
As for how to handle divine, arcane, and psionic "spells," I don't know. I'm not fond of the whole "Vancian" (fire-and-forget) method of magic. Maybe reduce the number of spells available, or have people have the full spectrum of spells available, but only able to "prepare" a selected number, with spontaneous casting. (How to distinguish between the three classes, I don't know.)
Revamp the classes so you have fighter (but with fewer feats?), arcanist (arcane caster), prophet (divine caster, with the domains), rogue, mentalist (psionic caster), woodsman (non-spellcasting ranger-type), shaman (nature-spirit divine caster, reduced spell levels, but some nice feats), and so on. I'd also toss in noble and expert adjusted to be viable classes.
As for prestige classes, who knows?