A medium longspear is one size category smaller than a large creature. Therefore the large creature treats it as a one-handed weapon, but still takes a −2 penalty to attack rolls when using it as such.
It works like a one-handed weapon in all respects, which means he can use it in one or two hands at his option. If he uses two hands, he gets 1½ Str to damage, and improved damage from Power Attack.
As for what reach he has with it, a large creature has a 10-ft. reach naturally (and can still attack inside this reach). A reach weapon for a large creature allows it to threaten at 15 ft. and 20 ft., but not at 5 ft. or 10 ft., its usual reach. However, as a smaller weapon than one designed for the large creature, the longspear loses its reach property, per Rules Compendium:
A wielder gains no reach from a reach weapon that is too small.
(Note that aside from this point, weapon size has no effect on reach.)
Thus, the large creature threatens his normal reach with the medium longspear, i.e. 5 ft. and 10 ft., not his “reach weapon” reach.