One problem with making the mouthpiece smaller would be that the pressure would have to be increased in order to supply the same volume of air with each breath. I’d think you’d then have two new problems: Needing to distribute the air blasts and freezing peoples lips (due to the pressure drop).
I agree that there is room for improvement on scuba regulators. I doubt any alternative would be inexpensive - which may be the reason they haven’t improved them since 1942.