I've been thinking long and hard about the 120mm. It's important it remains effective and that it remains somewhat in keeping with the notion of it being a 120mm mortar, not a 81/82 mm one.
In games I've played against it, I think the most significant problem is not its squad wiping potential, which admittedly is there and is a danger, but the inability for axis to knock out the weapon and its crew (the six man squad thing).
It's reasonable that both sides (and you see this on Axis side as well with a variety of weapons) have things that force aggressive and creative play from the opponent. We see this all the time with MGs, kubels, flaktracks of all varieties and the like, these are dangerous weapons which require the opponent to use tactics outside the box, be it flanking or whatever.
The problem with the 120mm however is not that its dangerous. I think its unreasonable to continue nerfing the weapon further as that just takes away the point and the flavor of the unit. What needs to be done is the 6 man crew. The crew size, combined with the frankly bizarre feature that allows the unit to survive on one man, means its very difficult to surprise it and then kill it efficiently. All the Soviet player has to do is hit the retreat button and he's pretty safe. With all the other "shock weapons" which demand the opponent to counter it creatively, it's relatively easy to damage them, even on retreat.
This isn't possible with the 120mm, which leaves your axis player not only feeling cheated because his elaborate scheme failed, but further cheated by the fact that the mortar then proceeds to return and wipe his units and the process repeats.
The problem ain't the weapon itself doing damage, it should.
The problem is the fact that the weapons too survivable so when it should die, it doesn't.
I think the fact I'm Soviet fanboy extraordinare should add weight to my arguments.