I third the notion of dividing the stat bonus by 5.
I also prefer the smoothed stat distribution from Companion I.
Another option is to add the combat level bonus to a base initiative factor, but I would only do this if you plan to keep the full stat bonus, or go with a d100 roll - otherwise level bonus then becomes the overwhelming determinant at high character levels. Thus, at 10th level, the fighter (assuming standard rules) would have a 30 base initiative, the rogue would have 30 base, and the thief would have 20 base. Rolls and stats are then added to the base initiative value. That doesn't do a lot for your present situation, but with other class choices, it would offset some of the racial imbalance.
I also agree with the in-game consequences. It's also true that half-elves, if they were truly that blessed and capable of reproduction, should have dominated the other races. There has to be a reason this isn't the case.
It's very possible there's some hidden reason that half-elves aren't more common. There's a webcomic called Errant Story based around that idea - that half elves are prone to negative mutations and psychoses, which often develop later in life. It was such a problem that the full blooded elves began hunting them down and killing them, even without any individual evidence of abberation.
In Tolkien lore, the half-elves could make a choice to remain immortal, or choose mortality. In your campaign, this might not be an optional choice - each half elf undergoes a transitional state where they are forced to choose which half of their parentage will assume control. Role play that, and you might even consider allowing the character's stats to transition over the course of several levels, once the choice is made. You might not do both characters together - the anticipation of the hammer's fall could certainly be an interesting character development for the one who doesn't go through that transition. Heck, for that matter, transition may occur gradually in some, and instantly in others.
