How about keeping the median as a point of reference, but making the no-penalty threshold slightly lower?
For example, 80% of median (rounded up) as opposed to 100% of median. A game getting 8 votes shouldn't have much higher variance compared to a game with 10 votes, likewise a game with 80 votes rather than with 100 votes (compare it to e.g. 2 votes vs 10 votes). Getting number of votes below that threshold decreases the rating like now, but with the 80% of median as a point of reference.
With that approach, it's perfectly feasible to achieve 100% of entries without the penalty, as long as the lower half of most-voted entries stays in the 80%-100% of median range. As it is now, the entry must either be in the top half of most voted entries or get the exact same number of votes as the median in order not to get the penalty.
Also, showing the median and no-penalty threshold during the voting - and which entries have how many votes - would allow participants and voters to make an informed decision about how much votes need to be gathered/cast to keep oneself/others out of the penalty zone without overcommitting to the jam.
By still using the median as a point of reference the system keeps its scalability. By lowering the threshold to 80% the system doesn't penalise nearly all entries in the lower half of most-voted entries, and isn't so sensitive to the median changing by just 1 vote. Finally, by keeping the threshold around 80% rather than 50% or 20% of median we can still keep the ratings variance comparable between the least-voted non-penalised entry and the median-voted entry.
Thoughts?