I havn't installed heated grips before, but I have pulled plenty of grips on and off!
Yes, you can cut the old grips off. Or, if you don't wanna cut up your Bandit, use an air compressor and a nozzle. Get the nozzle up under the grip, and squirt the air in there. That should relese the grip, and you keep blowing and twisting till it comes off.
If you cut it, you can even use scissors, get them in there and you can't damage anything then.
As for grips, if you want them small, maybe some motocross grips?