I remember seeing a chart showing weapons that could be used as other weapons of different sizes. E.G. a medium shortsword is equal to a small longsword. Both do 1d6 damage and have a critical rating of x2 on 19-20. This would allow a small character to use a medium shortsword as a small longsword. (I think this is not RAW)
This sounds like it might have been referencing the 3.0 rules, which did something kind of like that. As you are playing 3.5, best to ignore it. A mis-sized weapon remains that type of weapon, just wielded differently.
Anyway, on to the meat of the question: yes, if you have proficiency in it, the dwarven waraxe can be a one-handed weapon. If it is one size too large for you, it becomes a two-handed weapon for you, and you take a −2 penalty on attack rolls with it. So at best, assuming you are a dwarf, you can take a −2 attack penalty to go from a 1d10 (average 5½) damage weapon to a 2d8 (average 9) weapon. If you are not a dwarf, this also costs a feat, or the penalty balloons to an untenable −6.
Trading −2 attack for +3½ damage isn’t really a great trade, seeing as Power Attack would get you +4 for the same −2 penalty and can go beyond that. Realistically, you don’t want to take any attack penalties you can avoid—Power Attack loves Shock Trooper because it eliminates the attack penalty, and likewise, anyone wielding an oversized weapon wants a way to do so without penalty.
There is a terrible feat for that, Monkey Grip, which halves the penalty. A feat is a deeply precious thing, far too great a cost to only halve the penalty. Far superior to that are powerful build or the strongarm bracers from Magic Item Compendium. The best ways to get powerful build is the goliath race from Races of Stone, but it has LA +1 and isn’t really worth it (though the goliath barbarian substitution levels in Races of Stone can tilt the needle in their favor). Meanwhile the strongarm bracers cost just 6,000 gp. Since you can only have one race, and strongarm bracers explicitly do not stack with powerful build, the bracers are the way to go. Spending 6,000 gp on a +2 bonus to attack is clearly worth it.
But then there is no point in using a dwarven waraxe: with strongarm bracers, you can wield weapons as if you were a size category larger to begin with. That means you can just use a large two-handed weapon: a large, 3d6 (average 10½) damage greataxe represents a +5 damage bonus instead of +3½.
You could also use the strongarm bracers to wield a huge dwarven waraxe as if you were large, i.e. with a −2 penalty. That would be 3d8 (average 13½) damage, another 3½ greater than the large greataxe. Again, though, −2 attack for +3½ damage isn’t a great trade, and since you’re already using the strongarm bracers, easy approaches to dealing with that penalty aren’t available. You could go with the Wield Oversized Weapon feat, but again, a feat is a huge cost—and now this needs two of them (since you need to have Monkey Grip). And even if you did, again you would want to go with the 4d6 (average 14) damage huge greataxe over the huge dwarven waraxe. Two feats for +4 damage is pretty awful, though.
But we can actually go even harder with this. You might go with a gargantuan greataxe, for 6d6 (average 21) damage, since Wield Oversize Weapon makes it simultaneously count as a size category smaller and a one tick “lighter” in effort, i.e. you can treat it as a huge one-handed weapon (that you can wield as a large two-handed weapon at a −2 penalty). Two feats for −2 attack and a +10½ damage is starting to look kind of good, though you definitely can do better.
In short: it seems to me that the best approach here is to use a pair of strongarm bracers, and to use a large greataxe, rather than a large dwarven waraxe. That, or if you really felt like you could take the penalty and wanted to squeeze the most out of this, go with Monkey Grip, Wield Oversized Weapon, and strongarm bracers to wield a gargantuan greataxe at a −2 penalty.
You’d still do vastly more damage with a lance, though, and abusing charge damage multipliers.
Just about every option in the game for wielding a larger weapon is awful. A size category adds, on average, +1 damage, which is nothing, and certainly isn’t worth a feat. Damage does grow super-linearly with size, which means each size increase is worth more the more you have, but you can’t get bigger than Colossal so you can’t even really go “all in” on the idea and push the value far enough that it’d be “good.”
Monkey Grip and Wield Oversize Weapon both fall in this category and are entirely typical—i.e. bad—though of the two, taken in a vacuum, Wield Oversize Weapon is probably better, since attack bonus is worth more than damage bonus, and Wield Oversize Weapon’s bonus to attack may well exceed Monkey Grip’s bonus to damage. As you note, Wield Oversize Weapon is an epic feat, so its weakness is particularly egregious when you consider what other epic characters might be doing, but then again, this situation maybe doesn’t look so awful when you consider other mundane epic feats—Epic Weapon Focus gives the same +2 to hit, but only for a specific weapon, and that’s all it does. So you can kind of imagine what the designers were thinking when they wrote it.
The problem here is that Monkey Grip and Epic Weapon Focus are absolute garbage, and not reasonable points of comparison. No one should ever take either feat, so the question “should I take Epic Weapon Focus, Monkey Grip, or Wield Oversize Weapon?” is meaningless—those aren’t your only options. D&D 3.5e has a bajillion feats, and a whole lot of them are much better than any of these feats. You can’t even claim that you’ve run out of better feats to take, because there are definitely stronger feats that you can take as many times as you like, so you’ll never be at a point where any of these feats is the right choice.
In short, Wield Oversize Weapon is awful, and honestly comparing it against Monkey Grip, or other mundane epic feats, is being much too generous. Realistically, since it’s an epic feat, its competition is instead Epic Spellcasting—and anything that isn’t Epic Spellcasting falls far, far short. Epic spellcasters are literally playing an entirely different game from those who are not. Magic dominates the game, right from 1st level—by 21st level, it’s simply not plausible to play a non-spellcaster. Spells just do too much.
Which is to say, the epic rules aren’t balanced. This shouldn’t be a shock to anyone—D&D 3.5e doesn’t even make it to 20th in the first place. A lot of players feel it doesn’t even handle 7th acceptably, and it’s really genuinely difficult to maintain a cohesive game in the face of the absurd power of 7th-, 8th-, and 9th-level spells, even when everyone is trying hard to play nice. Once you move past that, there’s almost no hope, and I cannot more strongly recommend against trying to use the epic rules for any purpose.
Anyway, if you really want to wield a larger weapon, get a pair of strongarm bracers. They’re still not very good—increasing weapon size just doesn’t accomplish very much—but they’re reasonably cheap by mid levels, and they’re about as good as Monkey Grip and Wield Oversize Weapon combined. Or just become larger yourself—stuff like expansion and righteous might are legitimately quite strong, and being a goliath and grabbing mountain rage isn’t bad either. But that’s because being larger is ever so much better than simply having a bigger weapon—primarily because you get the reach.
Best Answer
Weapons underwent a massive design change between D&D 3e (A&EG) and D&D 3.5e: the former has weapons divided by size (a longsword is a medium weapon, which means a huge giant uses it as if it were a dagger), while the latter has weapon sizes (a longsword is a one-handed weapon, a dagger is a light one and you can have normal longswords and huge daggers and while they do the same damage they are different).
Hence, there are no huge weapons designed for medium creatures in D&D 3.5e.
Instead of delving in the rules for wielding a weapon made for a creature of different size (a huge giant can not hold a medium longsword, as I discovered in the worst moment, but can hold a two-handed medium weapon as if it was a light weapon with a -4 penalty to hit) I'd just head to the better (but costly) alternative.
You can use the Sizing weapon enchantment (Magic Item Compendium, p. 43) to have a weapon that changes to your size when you morph with a swift action. Since you're not wearing but wielding it, I think it doesn't get subsumed in your new form.