I have a motion I'd like to pass for implementation on BG:
Whereas small-sized characters are unable to wield medium and large weapons like medium creatures do, and Whereas this makes small characters disadvantaged, and Whereas, technically, small characters are supposed to have items made for their size, and Whereas small characters have strength reduced for their size, therefore
Let it be Resolved that all armor and weapons worn or wielded by small-sized characters have their weight reduced from 100% to 80%.
ουκ εστιν ωδε, ηγερθη γαρ καθως ειπεν
PCs: Rorick Runegraph (Check out Rorick's Rune of Light) Ckalthea Chenfur Aeric Squire Brevin of Lathander
That would make sense in the case of size had an effect on carrying capacity, which in PnP they do.
Small characters get a decent amount of bonuses to compensate for their shortcomings already with extra AC and AB, not penalized in speed -smaller player races are designed with slower land speeds in many iterations of D&D, including 3.5- and encumbrance.
Fignar Brokenshield - The Melancholic Defender Higan Hammerfist - The Stalker of Caverns
The only way that would work is if you add new armors and weapons templates into the game. It would be very ugly to try to give items properties based on who or what wears them.
And I don't think a halfling sized Greatsword will have the same impact as a human greatsword.