What was wrong with 3.5?
Was it that Goblins were usually NE?
Was it that Archivists were librarians of the holy faith?
Was it that Kenku in Forgotten Realms didn't play a big enough political role?
Or was it the mechanics?
I've always said to leave reality out of it all. Maybe it can be a creative source for ideas, but its the mechanics that matter in REBALANCING 3.5.
Realistic...is it 5th level or 10th level? Maybe its 15th? Seriously. There needs to be some decision on when the line between human and superhuman is, and I've heard both.
The line between human and super human is that a human is someone playing DND, and a super human is the character he's playing. This is a game, not a life simulator, and we should approach it as if we were fixing the game's mechanics, not the portrait of realism it paints.
M_v, I think we SHOULD rewrite the MM, but not for the reasons you state- the more balanced this game becomes on the players side, the less balanced it becomes on the DMs side. Fleshrakers still own at their CR, and Ogre Magi still suck. Once we balance the classes, we can make appropriate monsters for their CR. I'm hesitant to start it NOW, since we might change abilities throughout the balancing process.
But my point is realism is a false god for this project; a mechanic fixes a car by working the engine, not the paint job. If we really wanted to make the game realistic, someone start number crunching how we can take into account a Halfling's high pitched voice when it comes to listen checks.