Two things ...

One is that I want the only playable "race" to be the teddy bear. I like the idea of teddy bears gaining different powers depending on their relationship with the child, and I believe that having other races would weaken the concept. I am open to changing my mind.

The other is that I don't want to game to take place in the physical world. I would prefer for the bears to explore surreal dreamscapes and labyrinths within the child's subconscious. It could all be very symbolic.

This solves the monster size issue, and allows for massive and varied adventure sites.