Obviously, this is a completely "free lunch"!!! If we just buy index funds, which preferentially buy any larger company over a smaller company by design, we avoid all those "wasteful fees"!

This is a classic "seen" versus "unseen" problem - the "wasteful fees" saved is obvious, but what is unseen here? A couple of options might be: 1. indexing makes uneconomic acquisitions easier - a CEO can make stupid acquisitions to get bigger simply because indexing will bail him/her out as being larger for the sake of being larger and representing a greater portion of the index leads to great investor inflows. 2. smaller companies are hurt because there are fewer active investors to bother to analyze them as they have been crowded out by indexing.

This may have "benefited ordinary and small investors the most" thus far, but what happens in the next market crash when indexing investors are rushing for the exits? What has happened to Main Street as a result of the trend towards indexing being firms gain investment simply by being "big"?

It is doubtful many will agree with "bigness for the sake of bigness" is a positive development...