Agreed. Max bet at 1% was the only real chance of Nakowa going busto when he starts with his 300BTC bets. I'd rather lose my whole investment because of an incredible (and very unlikely) strike of bad luck, than just taking down the max bet which practically means that we won't be recovering our losses for months...
You are forgetting a very important benefit of lowering the max bet. With a lower max bet he will not be able to win as much by cheating before it statistically becomes obvious that he is. Depending on how large you currently think the chances of him cheating is, it might actually be +EV to let him continue with a 0.25% max bet...