Bodyguards need to be harder to kill, but not useable as an uber unit as they are in RTW or MTW (as in the case of the now infamous Byzantine Kataphraktoi Princes of MTW). STW approached this by using smaller units that could not be used effectively in attacks, except flanking attacks or against much weaker units (even then do you really want to risk your Daimyo in the melee?). In STW, units could not be pulled out of melee once engaged, so this becomes much more critical. The Daimyo is at his best use leading the battles and that's why he has a smaller unit but is also tougher than other units (to lessen the chance of his being shot by the player at the start of the battle).
I prefer STW's approach to Daimyo's/heir's units and heir assignment than MTW's, but that's just me. The full size non retrainable units are still the better option for the MTW engine though due to how it assigns heirs to (non regerating) bodyguard units instead of regular units. I feel that the non regenerating heir's bodyguard units hit the AI hard, as it has to pay astronomical support costs and cannot retrain them.
-Edit: If you have original STW (v1.12 - without MI (not the Warlord Edition) give it a go as battles tend to be a lot harder due to unlimited koku for the AI, none of the later fantasy units and no retraining*, disbanding or demolition.
*at least I'm pretty sure there was no retraining.
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