You've got it backwards. Volume reduces variance.
No.
TS is correct. It's hard to argue against you when you only say "No" and fail to back it up with any kind of argument about why increased volume wouldn't lead to decreased variance.
How it is/was setup is that if you make the maximum bet size, then once out of roughly every 30k bets the bankroll will lose ~99% of it's value. So while gamblers are making the other ~29,999 bets, the bankroll will be steadily increasing, as will the maximum bet size. On the 30kth roll, the bankroll would lose ~99% of it's value and would then be significantly less attractive to gamble against which would make it less likely that it would ever recover.
You seem to be misunderstanding. During the ~29,999 losing bets the bankroll grows by a factor of more than 100, so when the lucky bet wins 99% of it the bankroll is still bigger than at the start.
The current setting optimises the rate of growth of the logarithm of the bankroll, and so is set 'correctly', especially given the terms set out in the FAQ about allowing full-kelly bets.
I expect the people running the site will overreact to this lucky win and reduce the maximum bet. In doing so they will be reducing their expected profit, and also their variance. I did the same at Just-Dice - it's hard not to overreact in the face of suffering a big loss like this.