Chicken and egg problem - because of the high barrier to angel investing, you are right that most investments are probably larger. But would they necessarily be so high, if more people were legal (especially hackers who could be good contributors/selectors)?
I don't think it's purely that. VC demo days may not be the best place for someone with modest assets to find something they want to spend $10k on. They might have better luck talking to their friends, for example, or friends of their friends. The angel restrictions don't apply to those cases, either: it's only really official solicitations and funding rounds for which there are restrictions. If a few people get together and want to put in $10k each to a business one of their friends is starting, there is no law against that. It long predates tech startups, too; plenty of restaurants, dry-cleaners, and other traditional small businesses get their seed funding that way.
I think the law is fine as is. If you have $100,000, then you don't have any business making strategic investments in early stage start-ups. And if you really want to, you can, though not through certain forums.
To some extent, the government absolutely must protect people from their own ignorance. Being a so-called accredited investor is a very low bar, and there are ways around it anyways. Credit cards laws are an excellent example of laws that protect people from themselves, and that should be stricter still.
