Kyon is the only thing keeping reality from collapsing, and in this version he's just standing there while Koizumi openly thirsts for him and Haruhi turns up the chaos dial past eleven. The joke isn't that these characters are smaller, it's that they're exactly the same people but now there's nowhere left to hide from how absurd they actually are. Yuki playing eroge while everyone else descends into madness is peak Haruhi comedy, because the show understands that the funniest thing about the original cast is how utterly unhinged they were the entire time.
Kyon finds himself in another absurd situation, except this time the entire cast has been shrunk into smaller, more childlike versions of themselves, and their quirks have been exaggerated. Haruhi is louder and more obnoxious than ever, Mikuru is even more emotional, Yuki spends her time playing adult games, and Koizumi carries a deep love for Kyon. Kyon himself is mostly the same as always. This ONA comedy spoofs familiar plot lines from the original series: Nagato's laptop turns out to hold hentai, the club room's rack of costumes becomes an opponent, and dodgeball tournaments spiral out of control. Its humor comes from references and character warping rather than plot.