I'm not familiar with this pugilist class, but the way this is written shouldn't shaft the unarmed swordsage in the least. The intention is that Unarmed Swordsage gets the same unarmed strike as the monk (which gets overridden by the slam attacks), minus flurry of blows as usual. They then, however, get not only an extra attack at 8th level (when they would normally get an extra weapon attack for a high BAB, since Monks and Unarmed swordsages have only 3/4 BAB), and furthermore gain an extra one every 4 levels from there-on, which ends up giving them more attacks than flurry of blows normally does, at least without two-weapon fighting. The rules for natural weapons state that they do not grant extra attacks in a round from high BAB, and thus without the extra attacks, you'd be stuck with just the normal 2 attacks. The point of giving them extra slams at a certain HD limit is to avoid issues with multiclassing.
In the end, the whole thing is just to support a trope, and as I state in the original post, is not intended for serious games. It makes sure that you can play a cute little kid or animal or whatever, and unexpectedly be able to dish out the pain. As for the wizard comment, you sort of answer the issue. A Wizard spending a turn to cast a blasting spell to deal damage is usually wasting their spell slot and action. Their job is to either make everyone else in the party better, or make everyone on the opposing team worse (or, rather, to rewrite the entire rules of reality as they see fit). Let the monk do DPS, let the wizard inflict status effects and rearrange the battlefield and such.
Perhaps I'm misunderstanding what you're saying. When you say a monk is better off using the slam as a secondary natural weapon, what are you saying is the primary natural weapon, in this case? They only have one, unless they gain one from another source. Basically the Cute Bruiser Monk (or unarmed swordsage) gets a certain number of slam attacks which do considerably more damage than a core monk's unarmed strike does. Besides that, all of their slam attacks are made at the same attack bonus, whereas a monk's flurry of blows has diminishing attack bonuses as you get to their extra attacks. An unarmed swordsage generally doesn't care about the extra attacks, and perhaps they shouldn't even gain access to them. Afterall, their whole point is initiating strikes, which usually allow one attack with some extra bonus added on.