I agree with you, and think we can improve further by adding a third type of reward - the reviewer reward.

Allow high reputation to review content that has been flagged. If it's legitimately a rules violation, they confirm it. If it's not, they say so, and after a threshold, the flag is removed and the person who placed it loses reputation and does not get that voting power back.

Whatever happens, it's clear something needs to change. A few minnows on our minnow support project have been targeted and only able to fight back because of our support through it.