Ok, I was under the impression that if I improved it beyond the value of her Steel armor she would reequip. Didn't know it worked off the base value.
Pretty sure that it does - the reason she's using the sword is probably because she's judged it to be better than anything else she's got. I don't know if they consider enchantments when choosing gear, I'm gonna say 'no' as I've had followers unequip enchanted gear for an identical but unenchanted item.
If it's not the base rating that's the issue, it's what Necrovamp said above - she's skilled in Heavy Armor, not Light. She starts out with a fairly decent HA skill which will improve as she levels up until she reaches her level cap. Her LA skill starts at zero and will never improve. Eventually that might mean that even "plain" heavy armor of some kind will give her more protection than your souped up fur armor. At any rate she is never going to wear fur armor if she's got steel or some other heavy set in her inventory.