The larger diameter wheel allows the front to track over bumps and through ruts better than the smaller 17in wheels. Also, the front will stay more stable from the rotating mass being out farther. Gyroscope effect.
I tried my Supermoto bike at the local riding park with my slicks on. There was a lot of wooded areas and some open areas to go through. I felt that the bike handled fairly well. On the hardpack, I could actually out accellerate most of the guys with knobbies. The front got a bit hard to control in the wooded areas where there were lots of leaves and debris around.
I think that for the most part the larger diam wheel is for keeping the front wheel tracking over the bumps and ruts rather than being swallowed by the ruts and throwing the riders balance off.
A friend of mine worked at the Yamaha Factory for several years, I could ask him for the definitive answer.