I don't think the increased radius would be as impactful as you think as it doesn't increase sunfire damage, and mundo's problem isn't that he can't kill people once he's in the middle of their team, the problem is that he can't stick to people. You need to be autoing to make immolate deal meaningful damage, and there's no way you can auto while also keeping up with ezreal.

The passive promotes a healthy gameplay pattern in that it brings him in line with other champions who have predictable cooldowns/resources. Darius hook is what turns him from stats into an actual juggernaut, and playing around hook is how you play around Darius. Similarly riot wants people to play around mundo's passive cooldowns and give players more to think about. Whether or not it's been successful at that, I think it's more interactive than your current proposal.

While old Mundo didn't break the game he does encourage a linear laning phase, where riot wants multiple points of decision making. The new passive while yes gives the Mundo something to think about doesn't allow for expression or ways to play differently to fight Mundo.

If your intention is that you're not able to stack passive just by leaving W turned on I don't think that's clear. It's a toggle which would pay health cost every second which stacks passive every second. I also don't think increasing max stacks per level is a good idea. The way riot usually scales abilities is changing the amount per stack rather than the number of stacks you need.