Also, in response to: "do games need to be challenging?", http://en.wikipedia.org/wiki/Game does list challenge as one of the key components of a game.
And, http://en.wikipedia.org/wiki/Roleplaying_game does not list challenge as a key component. A reference to wikipedia is not a conclusive point.
A roleplaying game is an exercise in storytelling through a free medium. I don't know of a single roleplayer who plays the game to test their abilities.
Although there are some key aspects to storytelling that if avoided, will make the experience seem hollow, such as the heros journey (wiki Hero of a thousand faces for more detail). When you deliberately skip the heros journey in a roleplaying game, you sabotage the concept.
Most players recognise the need for a heros journey, and develop their character accordingly, usually without realising it. It didn't even occur to me to max out smithing for this very reason, thou I'm sure if the game was like Diablo, I would have pounced on it in a shot. Its about adapting to the game being played, and its vital you recognise that freeform RPGs like this have much more in common with a live action roleplaying game with very little dependance on stats, and instead on personal stories than with stat-based combat games.
Simply put, people expect this game to offer an experience in 'beating the game' instead of telling a story, are always going to be disappointed. I will argue against your balance (and no RPG is truly balanced.. whoever told you this is lying, otherwise the term Munchkin or Powergamer wouldn't exist.. only social restrictions stopped that from being too rampant) and statistical shortcoming of various skills, purely on the basis that the more you convince Bethseda to walk down this route, for what I believe is a vocal minority(my belief, poll may prove me very wrong), takes more away from the open storytelling world they provide me. Thats why I argue my point voraciously.
It also seems that the argument does boil down relatively well to "Can we consider Skyrim a simulator?" (or something like that). I would still argue no, but I'm tired and must leave for now, so I'll attempt to come back with a more fleshed out response.
No, its not a simulator, and despite the name, neither is the Sims, its clearly a game. This is not in dispute, no one is claiming simulator.