I think a useful aspect that could be attached to blacksmithing would be restoration. In Oblivion especially early on you can find 'rusty' or 'tattered' versions of armour and weapons that provide slightly less protection/damage. It seems weird that weapons and armour you find lying around in dungeons that could have been there years are in perfect condition when you pick them up. (Or off bandits and marauders who neglect their armour and weapons, just looting new gear off their victims instead.)

This helps add some balance and variety by then making the perfect condition armour and weapons much rarer and giving more reason to actually purchase them off blacksmiths/vendors (I hardly ever bought any unenchanted armour and weapons past the first level). Or if you have the right blacksmithing skill you could 'restore' them to perfect condition using ores, letting them achieve their maximum damage/armour rating.

This way it could be much easier finding a full set of 'rusty' or 'worn' steel armour, but then giving '[censored] yeah!' moments when you find an armour piece or weapon in perfect condition. Plus the rusty, tattered, worn aspect fit in nicely with Skyrims rugged and wild setting.

instead of "restore" I would like "Upgrade"

because then we can go from Rusty Iron > Iron > Fine Iron etc. it's basically what you said, but semantics, lol

Yeah that's cool =] I just think it would help make finding sets and weapons more fun unlike oblivion where you found a 'perfect' set fairly quickly.

This sounds like a good idea, as long as it is relatively easy to find the materials necessary to repair your armour weapons. I don't wanna be using a rusty iron sword for ages, only to have it break before I even find an ore to upgrade it with.

i like this idea