Your statement that the rewards are in line with the other flashpoints but what you fail to recognize is that the level of difficulty is not.
Regardless how many people believe the rewards are fine as they are I will never understand how the bosses for HM EV & KP as well as the first 3 bosses in SM EC are easier than HM LI and yet the rewards are greater. It makes absolutely no sense to me how more challenging content offers lesser reward, and for those coming late to the discussion i'm happy with the way HM LI is, just not the rewards.
You also mentioned earlier about time invested, my raid group does HM EV & KP in 80min each and thats taking the time to masterloot & /roll for gear. Take away another 20min for time wasted distributing loot and both raids are easily doable in an hour each if you chain pull and are on top of your game.
My time calculations earlier on were being generous with time. The fast you can complete an Op, the BETTER they are for gearing per player per hour. I used longer times to be more relevant to most groups that would benefit from the gear drops in LI. Yes Ops can be done in an hour and my guild can knock LI HM over in just under 25 mins, but now we overgear it and to do Ops in an hour you probably do too, so our cases aren't relevant.
In terms of difficulty: Compare Story Mode EC and EV/KP. There is a HUGE difference in difficulty. Now compare D7/KUS HM (IMO the hardest T1 FPs for Bosses and Trash respectively, especially pre Bulwark nerf) with LI HM. The difficulty increase is similar. It is similar to someone going: "I can beat EV easily so I should be able to beat EC." It doesn't work that way for Ops tiers and it doesn't work that way for FPs tiers.
Add to that, most people that fail at LI HM have NEVER tried it on SM. Hell most people try it because of the weekly and speeder quests, if they weren't there most people wouldn't even think of doing it. They skip SM because you can skip it on all the others and be fine AND because there is no reward for doing SM LI. As such, why bother?
The other reason LI is really tough is that it is a 4 man instance. In an Op you can usually afford to lose 1 player and usually still get through a fight all right. If you lose a man in HM LI you have just lost: a) your healer, b) your tank, or c) ~40% of your DPS until they can be rezzed. As such you can't really afford to lose anyone whereas in an Op you can recover by a) other healer rez b) offtank steps in c) only losing ~20% of DPS until they can be rezzed. 8 people gives a larger margin for error than 4 people.
What degree of loot increase do you feel is required? I personally think that changing Tionese crystals to Columi comms would be sufficient. I would suggest you keep in mind that upping the drops on LR-5 to Rakata would enable people to farm a Rakata piece in about 10 minutes once they know how to do it. Sav-Rak would push that out to 15 minutes but I don't feel he is as difficult and as such should not have higher drops than LR-5.