Not accounting for vertical distance while shooting down wouldn't make sense. Vertical height is still distance from the target. The farther you are from your target the more likely you are to miss. Just imagine. I'm standing on a 50 foot tall ledge on a cliff-face firing at a target 100 feet away and someone is standing on top of the cliff 200 feet above me is firing at the same target. Who is more likely to hit assuming they are both of the same skill level and equipment? of course it's going to be the one lower and closer and not the one higher and farther away.
As for it being impossible to hit someone who you are directly over, that would be a pretty rare circumstance. Your flyer would have to be flying higher than 18" in order to not be able to hit because they were higher than their weapon's maximum range. That being said I think there could be some argument for a house rule that says you always have a chance to hit your target if you are directly over them, even if your height is beyond your weapon's maximum range. The range should still count though. It's not like you are firing straight down in a vacuum from a stationary platform. You'd have the movement of your flying mount to deal with as well as the distance making it harder to aim at your target (yes you still would have to aim in order to line up the shot), and you have things like wind that the range rules account for. This all would lead to vertical range being very important in your ability to hit.
I'm not sure what you mean about downsizing the range because of the vertical distance from the ground. You always add the vertical distance between target and shooter when determining range. You don't subtract. Whether my unit is 6 inches above or 6 inches below its target makes no difference, you still add 6 inches to the range.
If you are playing with flyers with short range weapons, they aren't unworthy shooters, you just can't fly around at 20" above the table sniping everything with impunity. If you didn't count vertical range, flyers would be way overpowered as they would be able to shoot at ground targets without penalty and yet be much more difficult to hit back, if not impossible to hit because of their vertical height putting them out of range of many ranged weapons. I think flyers in the game aren't meant to be flying at extremely high ranges and the rules are meant to encourage players to skim the battle field at height band 2 or 3 (3 to 9 inches), only coming lower if they have a very short range attack or they need to get into close combat.