They should definately increase their strength and loot greatly. It should be special to find a rare spawn and fight it and knowing there will be a very good chance to find a legendary. 99% of legendaries are crap, so I don't see any harm in this.
I was thinking that rares should have a higher (almost 100%) chance of dropping Demonic Essences. At least with NV5. You can't really "farm" them like elites or whatever, but this way these nowadays boring mobs would at least add something to the table. Higher chance of legendary would be nice, too, but it's difficult to feel the difference between a 0.1% drop chance and a 1% drop chance for a single rare encounter; even though it's 10 times higher, you still won't get a legendary in 99 of 100 kills (on average) ;-)