IMO, gameplay difficulty could improve a lot just through changing the way armor affects the character, and how damage is dealt and received. Obviously better AI is something we all want, but simple under the hood calculations are, I think, even more important. I'm in favor of combining heavy and light armor into one skill, and a hybrid DT/DR system.
Why 1 skill instead of 2
In the past, there hasn't been a good incentive to not use heavy armor. By the endgame, you are just as silent and move just as quickly in heavy armor as you do in light armor. Bethesda has gotten around this problem by offering special sets of light armor with stealth-specific enchantments, which I don't think works that well. Lighter armors should inherently be more stealthy/less protective, and heavy armors should inherently be less stealthy/more protective -- end of story. So instead of trying to solve this problem through perks alone (although perks can help, and I'll get into that shortly) or through enchantments, placing both armors into one skill and letting calculations under the hood make up the difference makes a lot more sense. Let me explain...
Armor weight should interact with 3 variables: noise for stealth, stamina consumed while sprinting and jumping, and normal running speed. These three variables can be percentages. Let's say noise gets a multiplier of 5%, stamina consumption gets a multiplier of 5%, and running speed gets a multiplier of -5%. Now let's say we have a 10 lb suit of armor.
10 lbs x 0.05 sneak = 0.5. You are now 50% louder than if you were naked.
10 lbs x 0.05 stamina consumption = 0.5. You are now spend 50% more stamina per jump, and 50% more stamina per second of sprinting than if you were naked.
10 lbs x -0.05 running speed = -0.05. You are now 50% slower at normal running speed than if you were naked.
Obviously these specific numbers aren't a good idea, but the general idea behind it makes good sense to me.
Now onto perks: they can't totally negate the effects of the aforementioned functions, otherwise it completely defeats the purpose of combining armor skills. Weight should always affect your noise, always affect your stamina consumption, and always affect your movement speed. There could definitely be perks that mitigate these effects, but they should always be in play. This way your heavy armor will always make you a bit slower, a bit more easily fatigued, a bit less sneaky, than light armor, even by the endgame. It's one way to help keep things fresh instead of getting to that boring part of the game where you are in constant God Mode, without making the game stupidly difficult in the early game for no reason.
Damage Threshold and Damage Resistance Hybrid
So I think most of us already agree that the old DR system needs to go -- enemies become damage sponges and combat doesn't get "harder", it just gets longer. Frankly, combat becomes silly at higher levels and higher difficulties. So, I suggest a hybrid DT/DR system to replace it.
Copypasta'd from an old post of mine:
"For those of you who aren't familiar with the difference, DT negates damage by a flat rate, and DR reduces incoming damage by a percentage. In Skyrim, each point of DR reduced damage by 0.12% according to the Wiki. Neither system is great on their own, but a hybrid is awesome and tons of fun to strategize with.
Example (assume that each point of DR reduce 1.0% of income damage for the sake of easy calculating) : Armor DT = 20. Armor DR = 50. Weapon Damage = 30.
Getting hit by this weapon while wearing that armor results in 20 points of damage being negated immediately, and 50% of the remainder being resisted. So 5 damage is done."
Some people want a pure DT system for the sake of simplicity. While I see why that idea is attractive, I think it would be a mistake, because we can't forget about the other half of combat: offense. Having a hybrid system makes a lot more sense for crafting interesting, strategic, and fun offensive decisions. So with that in mind, let's talk about weapons.
?Make Weapon Choices Unique
TES games haven't really made much distinction between fighting with mace vs fighting with an axe vs fighting with a sword. The swing speed is slightly different and the damage is slightly different between weapon types. But there isn't much else that can be done in a pure DR or pure DT system; changing those values too much would make certain weapons obviously more powerful than others. So instead we are resigned to boring similarity... Skyrim made some headway in creating difference with perks, but there is a lot of room for improvement that can only come as a result of interacting with a DT/DR hybrid.
So in the above equation roughly outlining the DT/DR system, I left out a key point: weapon attributes that can overcome DT and DR. Arrows are very sharp and should be able to severely pierce armor. They aren't concussive at all. Swords are sharp and should be able to pierce armor. They are also a bit concussive. Axes are a bit sharp, and should be able to slightly pierce armor. They are also slightly more concussive than swords. Maces and hammers aren't sharp at all and would more likely dent armor than pierce it. They are much more concussive than axes though.
Arrow: Automatically ignores 25% of DT, but no change to DR.
Sword: automatically ignores 15% of DT, and 5% of all DR.
Axe: automatically ignores 10% of DT, and 10% of DR.
Mace/Hammer: automatically ignores 5% of DT, and 15% of DR.
Now these exact numbers don't matter, but the general ratio does. This is why a hybrid DT/DR system is important -- it creates a diverse defense that in turn requires a diverse offense. With this system, there is actually some strategy and role playing behind your weapon of choice. It also lends itself to plenty of perks that could build off each weapon types strengths. Arrows may have perks that increase critical hit damage. Swords may have perks that are bleeding related, maces may have perks that are limb-crippling related, axes may have perks that do both, but at lesser efficiencies.
Equipment, not HP
As we level up, yes, we should certainly increase our HP, stamina, and magicka. Enemies should also do the same. But by the mid game, we shouldn't be upgrading our equipment to better stuff just because enemies have higher HP. This especially becomes a problem when you get to the higher levels -- its why people waste their time figuring out enchanting/potion making/smithing exploits instead of just playing the game. We should be upgrading our equipment to take down baddies who also have upgraded their equipment.
I don't want my boss fights to be difficult because the Draugr Death Overlord of Doom and Death and Anger and Power and Etc. has 10 billion HP; I want the fight to be tough because, at least in part, the boss has some kick ass armor and weapons. Some awesome loot that is rare, that I won't just find sitting around in a chest earlier on in the dungeon. Placing an emphasis on equipment over HP is a whole other huge topic, but its very integrated to this one.
Critical Hits
Sneaking shouldn't give you some mystical damage multiplier. Remember one shotting dragons on legendary difficulty while dual wielding enchanted daggers in sneak mode? I do. The power of stealth attacks ends up breaking the game. The benefit of stealth attacks should not come from a damage multiplier -- the benefit of stealth should come from the fact that you have the element of surprise, you are hidden, and you are able to take well place shots with your arrows or well placed strikes with your melee weapons. Which leads me to...
Locational Damage and Crippling
?Yep, this had to be on here. Headshots should do double damage. Limb shots should do half damage. Torso shots should do normal damage. Each of these body parts should have their individual status bars, just like they do in Fallout. Basically just transplant that, minus the VATS. Shouldn't be that hard.