I said this on the official forums...will just leave this here... I am all for the band-aid approach. Do it all at once, everyone will get used to it in 1-2 weeks.
However, you could also implement both approaches.
Mists of Pandaria could implement the first part: the "Mega Damage".
However, I would suggest something like this:
All gear from 86-90 goes like...
Intelligence = Wisdom
Agility = Dexterity
Strength = Brawn
Armor = Defense
etc, etc, etc.
What this will do is all gear you get from 86 to 90 will have the new 'stat'. With this stat you can have a conversion of say, 50 INT = 1 WIS. So when people get new gear, they know anything with Wisdom will be better than the old gear. But it also gets us used to the smaller numbers.
With the new expansion after MoP, you have 2 options:
1) Now that we are used to small numbers, change all old stats to read like the new names for stats
2) Now that we are used to small numbers, go back to the old names for stats but do the 'squish'.
Obviously you will be introducing a whole new problem for players to get used to with the implementation of 'new stat names'.
Either way, you will be introducing new things to players, whether it is the squish or mega damage. The best approach will be an all at once approach.
Players will get it, after 1-2 weeks of normal play, everything will fall in line.
**As a side note, Blizzard, you should be moving forward with a plan to 'squish' all numbers from 2 expansions ago. So with the introduction of MoP, you should 'squish' all numbers from Wrath backwards. That way players who are a little behind will get the 'epic' feel of grinding gear/killing bosses through Cata and can still have the new expansion character growth feel. So when the next next expac comes out after MoP, you would 'squish' the Cata numbers and adjust everything else accordingly.
Just my 2 cents. TLR - SQUISH!!!