Now I need like a 50 50 50 50 5 5... or something really close to that after scaling... FML... and I'm not even doing Latin or French 
I do hope the cut-offs will drop accordingly. 
The thing is, doing well in Uni subjects isn't particularly difficult. I can sort of see where they're coming from in saying the 5.5 isn't entirely justified, given the amount of work it needs to get it compared to getting the actual 5.5 (which is impossible anyway).
Probably the workload isn't as much as normal VCE subjects but when you compare Uni Maths with the other maths subjects offered at a high school level, the jump probably does justify a 5.5. As andrewloppol said, it really depends on what Uni subject you're doing. And even if the 5.5 isn't justified, a 10% increment for a pass is more so. As AzureBlue said, there is no distinction between getting a 100% and just making the cut for a pass.
Not going to say I'm speaking truth since I don't actually do it, but from experience reasonably kids often don't do any work for Uni Maths, cram right before the exam and get 5.5. People say other subjects are like this too: off the top of my head, I know people who have said UMEP Linguistics, MUEP Japanese, MUEP Maths and UMEP Maths are easier than their VCE equivalents, fairly straightforward to get at least 5.0 in, and comparatively easy to get 5.5 in. I'd like to see evidence of Uni subjects actually being "difficult" to do well in compared to a VCE subject.
I will also come out and say that getting a 5.5 in Uni Philosophy is a LOT easier (or seems a lot easier) than getting 40+ in VCE Philosophy.
How can you say they're not particularly difficult? All UMEP subjects are different though? And they're designed to be a challenge?
I heard UMEP Philosophers are happy to pass, whereas I'm annoyed at my current 5.0.
Designed to be a challenge doesn't mean WILL be a challenge. This is inductive reasoning again, but just about everyone I've talked to has said their Uni subject is easier than the VCE equivalent. Also, it's a small sample space, but about 30% of the kids taking Uni Philosophy at Monash get 5.5.
It depends, I would say a study score of 55 would be way too much, but an increment of 5.5 isn't so out of proportion. No matter how much work you do or don't do to get your uni mark, it only counts for a very small percentage of your final mark as it is.
How much will it affect your score in the end? I went to the ATAR calculator and put in my year 12 results, which in 2009 would be calculated to be 98.65. I then changed the increment from 5.5 to 4.0 (even though my increment would have been more like 4.4) and got 98.45. It changes things enough to be potentially significant, but not huge.
1. Your point about it counting for very little works both ways - it's not like changing this is going to make a massive difference to most people's ATARs, so why all the fuss about making it slightly more balanced?
2. ATAR is relative - the amount of Uni extension students probably won't affect the cut-offs THAT much, but I'd imagine if everyone lost the "broken" 5.5, then the cutoffs might go down a few decimal points (ie. enough to accomodate for most the loss of .2 ATAR that you reported).
It doesn't make sense how people who get a pass get the same increment to people with, say like a 100. If I only cared about my VCE (which I don't as Accel Maths 1 is a compulsory subject in my uni course) then I would focus more heavily on my VCE studies as I know that getting a really high score on UMEP won't count at all.
I think this addresses a key issue here. Doing a Uni Extension subject shouldn't be about getting the ATAR - it should be about the experience of an early Uni education, and the fact that some students just do it to get an easy 5.5, then "hack" their way through the course means that it's undermining the purpose of the program. As for the point about the pass being worth less than say 100, it actually STILL is the case, given that Unis can use your extension subjects in your academic transcript (which is where it SHOULD count anyway). Sure, somebody could just cruise through and achieve a bare pass, but then they can't sit back on an awesome Uni subject score for when they hit tertiary education.
Yeah but the maths subjects scale way less than before and so does Chinese I think (and now they're removing the 5.5 increment from UMEP)... I wonder what's going to happen next. At least the aggregates for 99.9 are going down (probably for the above reasons).
ATAR is relative. If the scaling goes down, so does the required aggregate for every ATAR.