If a character with Giant Blood has weapons made appropriate to his size they should surely do more damage.
How much more?
I'm thinking of a longbow made for an 8 foot man. Thats got to be quite a bit more powerful than a normal longbow, especially when you take into account the +1 strength of a giant blooded.
Am i also right in thinking that a normal individual target spell cannot effect a giant blooded as he is too big and needs a +1 size modifier on the spell?
You are correct in that standard Corpus spell affects a human up to size +1, as a giant with size +2 you are immune to them, both to your advantage and detriment.
We have been sticking to the 4th rules on this. Size is added to damage and subtracted from defense. Easy and seemingly logical. This would be added no matter the size of the weapon of course, but it is still easier to handle then starting to diferentiate weapons. But then again the giant-blooded virtue has been changed too...
And being a giant does make the ordinary spells ineffecient and it forces the magus to improvise (as his regular spells probably dont take into account targets in +2 size)..
I agree adding your size is sufficient, however if you wanted to actually differentiate between a weapon actually forged for a giant, I suppose a quick way would be to take the size of the creature it was made for and add it to Damage while subtracting it from the Initiative.
You could just use the d&d method for large characters and let a giant blood size character wield a large weapon in one hand. So count a improved size longsword as having the actual stats of a greatsword etc.
By no means a perfect solution but quick and easy.
Just use a two-handed warhammer in one hand and a towershield in the other 
The weapon i actually had in mind was a longbow.
By adding the size modifier it becomes
Init: -2 Atk: +4 Def: 0 Dam: 10 Range: 35 Str: +3
I added a +1 strength requirement to the +2 a longbow already requires, since giant blooded get +1 to their strength this seems appropriate.
Damage went up by 2 points (i.e. the size modifier) and i bumped the range up by 5 yards which again seemed appropriate, a missile fired with more power should after all go further.
I think for my giant bloodeds axe i will just use a very large saxon style battleaxe and use the poleaxe stats.
Sounds fine by me. Fear the mini-ballista!
I'd argue that this is why Giant Blood gives you +1 Strength on top of everything. The beast creation rules extend that further.
As for weapons, you get your strength bonus to damage. Isn't that enough?
Ah fruny, Strength bonus is good but it over looks the actual size of the weapon.
Ex: Bob the giant blooded and harry the grog both hit dummies with long swords. Bob does slightly more damage on average because of his higher strength.
OK
Ex2: bob has a long sword specially made for a gentleman his size (8 foot tall). He and Harry both hit their targets again. Bob should do even more damage now since not only doe she have a higher strength he also has a longer, heavier weapon. Longer increases its ability to act as a lever and heavier increases damage on impact.
Clearly in these examples a big weapon should do more damage. And this is irregardless of the giants strength.
Reducing reality enough to make usable rules is always tricky business. And so there is much more to damage, and the general usability, of different weapons then just leverage and weight.
But we have to reduce reality to make the game playable. In your shoes I'd go with Lucius' suggestion of simply letting the person - whether a giant or whether using magic to wield larger weapons - use a larger two-hand weapon in one hand. This is still reducing reality, because there is much more to using two hands rather than one on a weapon, but still very easy to administer.