This has, honestly, been my biggest gripe with FF and RifE. I can understand where this system came from, why would a unit change what it is just because it contracted lycanthropy? But if you're going to do that to us, don't weaken the units and make them loose their levels and promotions. In practice, when you send the Baron in with a military push, it's next to impossible to use the captured units to help keep the push going. They're weaker, some times by far, if the enemy civ has well promoted units, than everything they're going up against, and at the end of the day, you're lucky if you have a single blooded werewolf.
Now, I will admit, the original werewolves could be very easily broken, but it was fun watching the world fall to an ever-growing werewolf army. Still, I'm not against trying new ideas and fixing things that are broken, and the current werewolf system was a neat idea, but it just doesn't work. It practically nerfs werewolves completely. They really need to be changed again.
I do have an idea for that, though, if you want to keep something close to the current system. First, get rid of the strength decrease. There should be a werewolf race promotion that gives bonuses and minuses to things that werewolves would be good or bad at. For example, +20% strength and maybe a +1 speed for recon units. Hunting and tracking is something they'd be very good at. Also a smaller boost, maybe +10%, to melee units. Killing things is also something they're good at, but they're not as good at using weapons. For ranged combat, I was thinking something along the lines of a -10 or -15 to ranged combat. Werewolves are not good at using weapons, and their non-retractable claws would probably damage the strings on the bows. On top of that, there should be a line of werewolf-only promotions. I'm not sure what all those should include, but level-dependent strength boosts and a greater chance for creating new werewolves, and the like should probably be among them. Also, an automatic promotion at say level 6 or 7 to make them greater werewolves, with a +1 or +2 strength, +1 speed, and +25% chance to create more werewolves. It should go without saying that the strength boosts of the current system would be gone.
Also, the current werewolf aesthetics are nonexistent, and that's disappointing. But that's relatively minor, and can wait.