I've actually known quite a few people who have downsized and been very happy. The power that the 600s and 750s are putting out these days is impressive. There really isn't much need for a litre bike, but a lot of people enjoy them.
Personally, for each of my track bikes and for my street bike I have downsized. For the street I started on a GS500, now have an NSR250. For the track, I started on an FZR400, went to an Aprilia RS250, and now I'm at a TZ125. My bike makes 38 hp on a good day. However, I am not unhappy with the loss of horsepower. Why? Because the bike is super light (160 lbs with fuel), is easy to throw around, and corners like nothing else on this planet. It's just an absolute hoot to ride and outcorners the bigger bikes. It all depends on what you are looking to get out of your bike and what you are wanting to do with it as to whether downgrading will be a good or bad choice for you.
I wish I had the cojones to ride a bigger bike, but I enjoy the features the little ones give me, and I'm not looking to give that up for a bigger, heavier bike.