I just got to 100 in the smithing tree and realized that I cannot make dragon weapons, but more importantly I cannot take a point in daedric(sp?) even though I clearly have the skill and there is a line (that does not look directional) from dragon armorer. My question is if this is intended functionality and if so is it true for all circular skill trees? In addition if it is intended then why isn't it clear when I started my character? Granted, I will likely play the game through again a few times, but knowing I cannot go back down a loop will change my build options greately.
This is intended, and it makes sense. Daedric Armor is a form of augmented Ebony, so you need to understand Ebony first and especially Heavy Armor in general. You specialized in crafting Light Armor, so your opitons in heavy armor are limited to Steel Plate and Dragon Plate.
When a skill's perk-tree loops, it only indicates that you can get the final perk at the pinnacle by following two different branches. So all perk trees will behave like the smithing tree.