Hmmn. Not sure why that would be necessary. If someone is going to close, they're going to close. If you have a Readied Action to Attack them as they do, then you can use it, if not I see no reason to force an Attack of Opportunity (this, after all, only works against one opponent at a time).

The reduced Damage thing was something I gave some thought to when designing this rule. In the end I rejected it for a couple of reasons. First, there is no real precedent in D&D for doing so (i.e. niether Non Proficient nor Characters in a Grapple nor Characters Fighting Defensively suffer a penalty to Damage). The other reason was that this was designed for (A)D&D where Damage is on a much shorter range, so the effect might be quite severe (maybe even too severe in 3.x).