Now hold on there! You’re not going to get anywhere thinking any one action will fix your problem! 
That DID do something different. The character shrank! Progress!
Granted, the collision did not. But the mesh did, flawlessly!
But the stretching happened AFTERWARDS when the ragdoll effect activated.
When you set Simulate Physics to True on something, it will deparent from its parent. That seems like the thing to investigate here.
Since you are activating simulate physics after the scale, it is deparenting and using certain relative values based on the original size generated at runtime vs the new scaled size.
Try setting the scale specifically for the mesh.
All that said, I have absolutely no idea why that collision capsule is not changing size and it’s stumping me.