The paper filters are more restrictive than foam because they have smaller pores. This means that paper filters will trap smaller dirt and dust particles and allow fewer particles to get through the filter and into your engine, or your airbox. Also, opening up the intake and exhaust on an engine generally moves the power band up. In theory, pulling the snorkels would also move the power band up.
The paper filters on our bikes, however, are quite large in relation to the engine and can pass much more air than required under normal, or even heavy, load. Enough so that, like you said, the liter bikes do just fine with the same filter for long periods of time. It would take a whole lot of massaging one of our boxers before the filter was a problem
And yes, the greater number of pleats in the paper filter increase its surface area. This means the filter can trap more dirt before it needs to replaced vs cleaning the foam.
Snowbum has a great article on K&N's, etc... including some graphs spit out by very nice testing equipment. Granted, the tests were done on filters for Duramax Diesels, but the same principles apply. K&N performed quite poorly in most of the tests. They do let more air (and dirt) through and don't get water damaged... but we're not talkin' 800 horse muddin' trucks.
On a positive note, I'm diggin' the new breather... and I'm intrigued that your gal wears a bowtie
