Wulf Ratbane
Adventurer
Personally, I'm in favor of the reduction of the size bonus. I think the +4/size over medium is probably closer to reality than +1/size, but the latter makes for a better game.
I hear you: Better game trumps simulation.
But I'm not sure you have to make that choice in this instance.
I'd rather find something else to reduce the vulnerability of creatures like dragons to touch attacks.
The grapple bonus is not there to compensate for Huge creatures' vulnerabilities. Nevertheless their size bonus for grappling is already adequately compensated in other ways. You're not typically going to find Huge creatures with fewer than 8 HD, so depending on the creature type we're talking CR5 or so. You should have more than enough abilities (and the experience to use them) to deal with Huge grapplers by the time you meet them.
Do folks not use the -20 penalty for Improved Grab that's already in the RAW? You make it sound like grappling the PCs is a no-brainer move for the big critters, and I've never found that to be the case. A full-on no-penalty grapple-- despite it being "unbeatable"-- is still pretty situational.