Without the HP pad, the game becomes very binary. Either you take no damage or are significantly hurt.
You have this today. A low level foe tends to hit for 1/3rd of a low PC's hit points.
The difference is that high level foes in 4E tend to hit for 1/6th of a high PC's hit points and DMs have to go out of their way to create monster groups that have good synergy and many attacks per round to overcome this. Course, they rarely can due to the vast plethora of temporary hit points, resistance, surgeless healing, and normal healing at high levels. The PCs have too many ways to reduce this damage even more.
The reason your claim here is inaccurate is that damage in this type of model is significantly decreased over what 4E does today. It's ratio-ed out to an appropriate level. It's not just +1 more damage per monster level.
It makes encounter difficulty much harder to guage and depending on the dice the players either don't feel challenged or face a TPK.
No it doesn't. It makes low level practically identical to 4E.
It makes high level grittier, but that's because high level currently in 4E is a bit of a joke.
As an example, a same level foe in 4E does level+8 damage against a PC that has 16+level*4 through 24+level*6 hit points.
At level 1, that's 9 points of damage against a PC with 20 to 30 hit points or 2 to 3 (sometimes 4) average hits will usually drop the PC. The odds of hitting though tend to be 35% to 50% or so.
At level 20, that's 28 points of damage against a PC with 96 to 144 hit points or 4 to 6 hits will usually drop the PC. Instead of 33% to 50% of a PC's hit points (depending on class), it's now 16% to 25%.
That's one of the flaws of 4E. It's sweet spot changes. This type of model avoids that. It's pretty obvious that you don't like this system, but your claims about it are inaccurate.
And of course, this system can be tweaked to whatever WotC thinks is the best model with regard to percentage of damage per hit for a same level foe, chances to hit for a same level foe, etc.
Personally, I think that PCs should hit same level foes about 60% of the time and that it should take 3 to 4 hits to take out the foe (almost regardless of class except for Strikers). I think monsters should hit PCs 40% (vs. melee class) to 60% (vs. non-melee class) of the time and that it should take 3 hits to take out a non-melee class and 4 hits to take out a melee class. In other words, 10 attacks (sometime via multiple attackers) to take out a melee PC and 5 attacks to take out a non-melee PC (by this, I basically mean a Fighter vs. a Wizard, there is room for shades of gray in between).