Well, According to the Pathfinder SRD:
Inappropriately Sized Weapons: A creature can't make optimum use of a weapon that isn't properly sized for it. A cumulative –2 penalty applies on attack rolls for each size category of difference between the size of its intended wielder and the size of its actual wielder. If the creature isn't proficient with the weapon, a –4 non proficiency penalty also applies.
That said a small short sword is pretty much mechanically identical to a medium dagger. It would not be unreasonable to say that if they were to take the weapon with a smith that could craft a magic weapon, then that smith could create a medium dagger handle which could slip over the short sword handle so that the -2 penalty is negated and the Full Moon's Trick is now considered a medium dagger. Of course this isn't in the Rules As Written, but a very reasonable DM Fiat based of Rule 0.
Rule 0: First and foremost, an RPG is meant to be fun. It's the DM's job not only to enforce the rules, but to ensure the rules don't get in the way of the fun.