If you ask me, since it is an RPG I would make everything as realistic as possible. I play Oblivion with many mods and all of them make things not JUST better - BUT as they SHOULD have been in the first place...
Yes, I believe you should not be able to carry 10 weapons and 7 armors and tens of others of things around with you!!! You would be amazed how I set up my Oblivion with great mods...I can carry my own weight at most, get tired fast if I have more than about half my weight. My fatigue goes down so my fighting does less damage. That sums up to about the armour on me, weapon I use and just a few other heavier items that I can carry. I also need to eat, rest, drink and guess what - I can even get WET (you can see droplets of water on my character) when I enter the water...HA HA...how cool is that?
Back to encumbrence - 'tis really a no-brainer - if you carry around 100,000 gold with you - it is unrealistic - and I mean it is grossly unrealistic... I am not saying that everything can, or ever will be realistic in games, of course...(like, you can not "feeeel" the fire burning your skin, okey?) But I am saying that 1 gold coin (if they leave it at that) could weight something...0.001 pounds or kilos, or something like that. You would see how much more fun the game would be and you would definetly get more sense of achievement...
P.S. OK, so you clear out the cave, find tons of things...but hey - you can't take all the sh.t with you. That is normal situation people - N O R M A L..You have to make decisions - and people are lazy/unable to make decisions. Pick the most valuable stuff and pick the rest later. So basically Bethesda is catering to "I'm gonna take all the sh.t from this cave with me" people.
By the way, you CAN have lots of things, in your house...then you come, leave some of your sh.t in the chest and pick some new sh.t up...simple as that...HA HA