The Shifting rune states that the weapon "takes the shape of another melee weapon that requires the same number of hands to wield."
Since a weapon of any size still requires the same number of hands to wield (by a creature capable of wielding that weapon), does this imply that a Shifting rune can freely change the size of a weapon?
The number of hand needed depends the weapon size.
The proposal of the rune was to allow a character to change the form of his 1h with any other 1h. Same goes with 2h.
If the starting weapon is larger, like a giant instinct barbarian with a large axe, then you would be able to switch from a large greataxe to a large greatsword, for example.
Remember that the hands needed to use a weapon depends both the creature size and the weapon size.
I thought that too, but I think that's mental cruft from D&D 3.5 or PF1. The section on weapon handedness (p280) states only that weapons require the number of hands listed in their description to wield, and the section on sizes (p295) states that a Small or Medium creature can wield a Large weapon but at no benefit and they become Clumsy, but doesn't state that they need two hands to do it.
It's a loophole, yes.
I think there's a mechanical purpose behind this attribute of the rune more than a fluff reason (especially given the huge difference in size between a dagger and a bastard sword) and I think it's tied to having (or in this case, not having) the convenience of switching easily between 1H & 2H weapons. (Hand usage matters a lot in PF2.)
So it's hard to argue along lines of fluff and going by mechanics it's hard to determine the worth of easily switching weapon sizes when it's only worthwhile for very specific builds.
That said, there's a serious side effect of allowing this: adamantine mining (or even orichalcum if you can get hold of some).
The rune, from its wording, appears to be a permanent effect. So you could make Gargantuan weapons of precious materials, swap the rune over to another weapon, repeating as inclined.
Setting that extreme instance aside and going with keeping a rune on a weapon, the rune would also work to let someone who wants a large weapon get around the expense of a rare material for their weapon by first placing it on a smaller weapon, maybe even a Tiny weapon if that reduces the cost. So I'd say no.
Well I asked about my group and we decided - House rule
"All runes have their effect and are permanent while they are on the item. If you erase the rune the effect ends. Therefore if you swap the rune, the effect must end. "
So if the effect was to change the item to another item, it would then revert to its original form.