That's proof that your DM has spent too much time in optimization forums.
Spell-Like Ability Caster Level.
Regarding the HD increase: Wow. It seems legally correct, though very strange in that spells that increase size do not seem to grant such large bonuses.
In retrospect, this is probably part of the reason the Babau did not come with an official LA. Nevertheless, as with the Persians and Medes, it is generally best if a DM's pronouncements are not revoked, and so Babau remains unchanged (and probably, hands-down, the best option for a melee monster.)