I have started a monk (custom class Free Monk) that uses hand to hand and I think it's useful when you don't want to carry a lot of weight around. I'm walking around in the same sack cloth pants, shirt, and sandals that I came out of prison with (including the wrist irons).
In one of the forts, don't remember which one, I was able to sneak attack and kill 4 Bandits and a Mage with just my fists.
Have fought two roadside bandits and beat them too. Although, it was quite a fight with one of them.
Your bare fists never degrade, wear down, or break. As your skill increases, your weapon (fists) automatically upgrades without buying anything
True that you need to get up close and personal but I have added Conjuration to my class so I have a trusted companion in my conjured skeleton.
I love the idea of being able to walk around free of all of that armor and still have a powerful weapon.