Paul,
I think for a lot of players the default is to stick together and let handicap strokes make up the difference. I've played that way (usually with people who really, really prefer staying together on the same tee like friend Sean) but once you get up around a 60-80 yard difference in driving distance and three to four club difference in iron shots I find it more fun to split tees.
Of course what I described is pretty specific to the case where the longer player is also the better player. If you had a 70-year-old, short hitting 3-handicapper playing a match against a long-hitting 15-cap then a difference in tees just exacerbates the number of strokes required. I guess in that case if they played 1,000 yard different tees the big-hitting 15 would need to get a stroke a hole or more which to me always makes a match rather awkward.
Regarding aerial vs. ground game my friend actually hits the ball a lot lower than some other longer hitters in my experience. But at his home course there are a lot more downhill tee shots than at my (former) club. In fact, that may be why the different tees don't work as well for equalizing our games. At his course, if you move me up say 40 yards on a Par 4 but my ball will land on a downslope that really helps. But if his ball lands on that downslope it may actually run into trouble because he hits it so hard. Not sure how to exactly analyze that part of it, I'll ponder on it next few times we play.
When I'm in the UK it depends somewhat on the particular course but typically it has not been all that much of a problem. First off, I prefer to come over in September when the weather is often dry and the turf generally at its firmest. That sort of thing really extends my comfort zone in terms of length of the course. There are 6,300 yard courses I've played in the UK where I did not feel I was too far back at all whereas back home anything over 6,000 yards (Par 72) feels like I'm slugging for distance shot after shot all day long without ever really getting much variety. Also, a lot of visitor tees are in the 6,000 to 6,400 yard range even if the medal or championship tees would be intimidatingly long.
I'm thinking back to a couple years ago when James Boon invited me to an Invitation Day round at Notts. So he and I were playing of course the same tees as were the two other fellows in our fourball for the day. While I loved the course and had a great time, that was mostly dependent on my host carrying me for probably 13-14 of the 18 holes. I don't think we used my ball except for a couple holes where he was out of play and maybe two or three others where I actually scored better. If we'd have been playing a head to head match instead of as a better-ball team I'd imagine I'd have been wishing I were playing the course at least a few hundred yards shorter.
But anyway, to your core question
And as I said, everyone now seems to think they are supposed to face the same challenge, i.e. a five iron for you and a five iron for him. But none of the ODGs had that in mind. As I've equally said already, the like of Colt planned holes so that shorter hitters could compete playing a different way.
I don't doubt that's what Harry Colt was thinking. And I know that's what many people prefer. Lord knows Sean and I have discussed it more than once over the years. I'm just saying I've tried it both ways and I prefer the arrangement my friend and I have arrived at. I've said in many other threads here that there's a reason golf has evolved with the "Par 4" or "two-shotter" being the majority type of holes on most courses. That's the rhythm that generations of golfers have gravitated toward. Hit it off a tee, hit it off the ground, chip and/or putt a couple times. The more often I can do that in a round, the more fun I have. Especially when my opponent and I are going about the same hole in much the same way.
Not saying my way is better or that it ought to be more fun for anyone other than myself. But I suspect it is preferred by an awful lot of golfers or else why would the vast majority of courses built in the past 75 years feature three, four or more sets of tees? What's the old saying about golf being about trying to turn three strokes into two? You can also save a stroke by turning five strokes into four but it just isn't the same thing.
Take what one guy I know calls "advancement shots". This is different from a "layup" which implicitly is a shot where you choose to play two shorter shots rather than attempting one long one. An "advancement shot" is where you simply hit the ball from fairway or rough with the longest club you hit and try to get it as far as possible with the knowledge that it's the *next* shot which will be a layup vs. go-for-it decision. My long-hitting friend may only face one or two (or none) of these shots in a typical round, after totally mishitting his tee shot. If I play from his tees there may be a few holes that are not only unreachable in regulation, they require a mid to long iron to reach in one more than regulation. I find that the more "advancement shots" required in a round, the less fun I have. Tee shots, approach shots, recovery shots, any kind of shot with a requirement other than "hit it as far you can but it won't be far enough" are preferable.