No, the damage done should reflect our stats and skills and level, not where we hit someone. As long as the damage is shown in some way by a bar or by some stumbles or falls for high damage I'm fine with it.
Should be both, but I don't care that it's not in. A mod like http://tesnexus.com/downloads/file.php?id=20163 will come around and give locational damage.
Speaking of stats, should your endurance determine the amount of damage you do or should health?