Artemicion, yes, the technical details are stupid. But your suggestion is just as ineffective (imho).
Even if you solve the problem by making real health and displayed health different by a factor of 10, the problem will come back soon (probably the next expansion pack).
One thing Blizz could do is redefine all health-related variables as 64-bit and not 32-bit. However, there is a whole API between the engine and customer-made addons. I bet a lot of addons will break if they change the API.
Having real health 10x larger than shown health is fine at level 90. But what at level 1 ? If a bat in Tirisfal Glades has only 10 health, what are you gonna display ? Some (low-level) mobs must have normal health, others (high-level) must have squashed health. Where are you gonna put the line ? Are you gonna mark every mob as "real health" or "squashed health" ? You could just as well go fronm 32-bit health to 64-bit health then.
"Smart tricks" like you suggest are the major reason for problems and bugs. Doing stuff the complicated way, in stead of the straight-forward way is always gonna come back and bite you in the arse. I've heard that the current WoW-engine is still based on the old Warcraft-3 engine. And I bet it has a crappy editor that has such a huge history as well. For me, that would explain why Blizzard has such unbelievable problems producing content. All that "it takes time because of polish" is a load of BS. When amateurs can churn out whole levels in the Unreal Editor/Engine in a matter of days, why does it take years for Blizzard to create their low-poly, low-res crappy content ? Anyway, I'm drifting off the subject.
The most remarkable thing is that the squash doesn't do anything relevant.
I would have expected them to lower health numbers to the order of a few thousands. Now we're back only 1 expansion.
I also had expected them to take out the weird bumps in health/dmg/item-level at 60, 70, 80 and 85. They haven't done that either.
They seem to have acted like headless chickens here.