Shotguns definitely need SOMETHING different done to them so that they are useful without being overpowered.
Making the bullets do less damage over distance seems like only half a solution though. People will still spam corridors with shotguns and the opposing players will just have to take a gamble on how much damage they're going to take. Or they'll team up with somebody who has any other gun and the shotgun will lock down the area while the other person's bullets, which will be mostly obscured by all the shotgun bullets, will be doing the real damage.
The distinct advantage that shotguns have over other guns though, which I would hate for them to lose, is that they are great for encroaching and regaining territory from other wallers.
You can create some pretty solid walls with most guns that have 0.05 freeze (shipka comes to mind) since in a lot of cases they reload in close to the same time as the firerate (one bullet gap), and if they're moving forwards at the same time that gap is even smaller.
If you can get a gap against a waller in a corridor, whether because of reloading or because of spread, and you fire a single shotgun blast back at them it forces the other player to move back out of the corridor, or forces them to move up/down significantly more than just one shot with another gun, which creates room to move and respond.
Walling is an issue that extends way beyond shotguns. AA12 was just the extreme end of things because it had everything going for it (firerate, damage, reload).
tl;dr: if a limit is imposed I think the bullets should disappear at the limit, and the limit should be close to grenade distance just to make things interesting.