Its hard to say that H2H should be effective. Give any martial artist a knife and he could kill faster ( especially against an armored foe) however its definitely not ineffective either. I think it would be interesting if they combined H2H with other melee skills. so leveling H2H allows for things like kicking or pushing, pulling and attacks of opportunity in the midst of swordplay. Almost like having a second "fighting" skill in addition to a weapon skill. and the best way to level it would be to fight unarmed. How this would be implemented, I'm not even interested in suggesting. Use your imagination. We should all be thankful that H2H didn't go the way of the unarmored skill of Morrowind
yes I am also disappointed with how its almost ignored as a viable alternative. I've always wanted a pacifist Jujitsu user that defends and incapacitates instead of kills. but even if you knocked someone out before you killed them, they just got back up and kept fighting...
As for things like brass knuckles, i think it kind of defeats the purpose of being unarmed.
edit: I could also see merging H2H with acrobatics... which would make them both more viable, usable, and believable.
I agree that unarmed combat will always be less practical than weaponized combat, but realism isn't necessarilly the point of a video game, its about enjoyment, so for the sake of the game they could make H2H on par with Blade, Blunt, and other forms of combat. Also I think improved swordplay involving things besides the sword would still be incorporated in the weapon skill for swords, because that includes all elements of fighting with that weapon, not just the weapon itself.
H2H should only be used for fighting without a weapon, and I agree it would be pretty cool combined with acrobatics for some flashy moves, or combined with block to deliver counters.