I found Noster Eagle Eye's Helmet in Steepfall Barrow (I'll always remember that place in happiness as Faendal actually saved my life from that Frost Troll on that bridge! )and before giving it back to him, I've decided to temper it with Smithing and go the extra mile. And, I plan on giving it to him during The Burning of King Olaf Festival for good measure.

However, I have noticed something rather odd and this might just be my skill. I go to the workbench and click on it to temper it more past Superior, and I get a message saying "I don't have the skills to improve this."

Uhhhh... I have plenty of Leather and my Smithing skill is 50. Perhaps I need to invest in more Smithing perks? Either that, or Superior is as high as it'll go?

I'm also saddened I cannot Enchant the Helmet either as it doesn't show up on the list. Oh well.

You should be able to both improve and enchant it, unless you have a mod that prevents this.

He doesn't use it anyway. It just rots in a hole. Also, it's a quest item.

I don't know about how it works in Skyrim, because I've never tried it, but... If you do something that changes the id of the item, like enchanting or possibly improving it with smithing, Noster might not recognize it as his/the quest item.

I know the only way to stop the owners of items you stole in Morrowind was to enchant them. It changed the id, so the owner no longer thought it belonged to them.

I've improved quests items in Skyrim and been able to return them to their rightful owners without any problem.

For an armour type without a perk you'd need 65 smithing to improve it past superior. 65 would get it to exquisite, 100 to flawless.

Is the helmet enchanted?

I'm thinking that's what it is. You may need to invest in some perks on the Smithing skill tree. I usually use light armour materials and invest in those perks on the Smithing tree, but I can't improve stuff like Dwarven or Orcish weapons very far because I don't have the related material perk unlocked yet in the Smithing tree.

Other than that, like J'Roqq Khan may be suggesting, check to see if you have the smithing enchanted items perk unlocked in the skill tree. IIRC, that perk requires 60 in Smithing skill.

Same here, Aela's shield. Vilkas's sword, Ulfric's axe... just to name a few off the top of my head.

Oh and the queen's blade for the smith in Windhelm.

To the OP, you may have the correct smithing perks but your smithing lv is not high enough. 50 is good but, your only half way there.