Yeah, they don't level with you. On the PC, you can fix this by selecting her with the console up and imputing disable then imputing enable. That'll put her at your level. On console, Bethesda will need to patch it.

Just improve the elven armor to superior or exquisite and she will wear it (unless you cheated her up to your level, then she might not wear anything less than plate).

Lydia looks good in Blades armour.

Sadly improving the armor has no effect, she just won't wear Elven armor, I've had flawless Even armor and given her it, she simply won't wear it. I haven't tried the console remove all items and then give her it, I could try that. But the perks ideas people have had do make sense, I met her at level 4 so she probably just doesn't have the perks. If I give her Dwarven armor she has barely any strength left to carry items so she's definately on the weak side. I'll probably start a new game once the patch is out so I can try her then

In my game she increased levels with my character. I've seen on these forums at on the wiki that she doesn't increase levels, but I specifically checked (using the getlevel command in the console) when my character was level 9, and she was also 9. Then when my character increased to level 10 I checked again and she was at level 10, and some skills improved too.

It's because steel is better. Or she thinks it is anyway.

The armor rating you see is from your own point of view, ie your own stats and perks. From here point of view 'high heavy with perks vs medium to low light with little perks) the dwarven is easily better.

I think the bug is that the skills and perks don't improve, yes her level goes up but her skills and perks don't, or so I understand