The player aspect:
Beth should make the combat more momentum based, where a wimpy level 1 thief's iron dagger is going to bounce off of a level 1 warrior's iron armor. However, if the thief uses his superior athletics skill, and runs at the warrior, he should do some damage, and if he jumps and runs when he hits him, he should do a lot of damage. Now then, if the warrior attacks the thief, his sword should tear through his thin leather. This seems like it would make high level stealth and magical characters unable to take on even a lower level warrior. To equalize this, thieves would be given a dodge, and mages have their shield spells. Faster characters would also have an advantage, because of the, for lack of a better word, adrenaline system. Where if you constantly are on the attack, you will gain a damage and penetration bonus. They should also add active/timed block, like that in Deadly Reflex (hell, implement everything from Deadly Reflex, especially the 250% damage increase).
The character aspect:
I think Beth should first look at a mod (which I'm having trouble finding :brokencomputer: ) that makes attributes and skills have a much greater effect on damage. They should also look at Mount & Blade's combat system. If you attack an enemy with the best axe in the game, and your axe skill is 15, it will bounce off. If you attack at the same enemy with the worst sword, and you have the maximum sword skill, you'll probably kill him. So, if your a level 1 Thief with a daedric dagger, you still won't be as useful as a level 20 with an iron dagger.