Kmart Kommando said:
Threatened squares only interacts with your ability to make AoOs.
You threaten all squares into which you can make a melee attack. While grappling, you threaten no squares. Into which squares can you make a melee attack? No squares.
Hence, "While you’re grappling, your ability to attack others is limited."
Remember also the text from Improved Grab:
The creature has the option to conduct the grapple normally, or simply use the part of its body it used in the improved grab to hold the opponent. If it chooses to do the latter, it takes a –20 penalty on grapple checks, but is not considered grappled itself; the creature does not lose its Dexterity bonus to AC, still threatens an area, and can use its remaining attacks against other opponents.
If the creature
doesn't take the -20, it is considered grappled itself; it
does lose its Dexterity bonus to AC, it
doesn't still threaten an area, and it
can't use its remaining attacks against other opponents.
Here's the 'Attack your opponent' option from the Grapple rules:
Attack Your Opponent: You can make an attack with an unarmed strike, natural weapon, or light weapon against another character you are grappling. You take a –4 penalty on such attacks. You can’t attack with two weapons while grappling, even if both are light weapons.
So, if I'm using the Attack Your Opponent option, I'm restricted to unarmed/natural/light weapons, and I take a -4... and I'm restricted to attacking a character I'm grappling. Therefore, if I'm attacking a character I'm not grappling (as you suggest is possible), I'm not using the Attack Your Opponent option; I'm just making a melee attack into an adjacent square. Thus, no restriction on weapons - I can use my greatsword - and no -4 penalty.
And since I can just make a melee attack (as you suggest is possible) against an adjacent character, since "You don't threaten" doesn't prevent me attacking except with an AoO, there's nothing to stop me just making a melee attack against a character sharing my square - something I could do normally. So rather than using the Attack Your Opponent option to attack the character I'm grappling - restricting my weapon choice and imposing a -4 penalty - why don't I just do the same thing... that is, make a normal melee attack with my greatsword at no penalty?
... right?
-Hyp.