I don't think your precision would decrease, I think it would either stay the same or even increase. If you think about it, it's easier holding something in two hands than it is one hand, right? And because of that, you have more control over your swing, and more control means more accuracy. (I just tried this so I'm pretty confident in my reply.)
I'm talking about http://www.designtoscano.com/product/zoom.do?productID=108651 with that, not hand and a half swords like http://life.halcode.com/wp-content/images/katana.jpgs or http://images4.wikia.nocookie.net/__cb20081207103836/inheritance/images/e/e8/Hand-and-half.jpg. I'm not sure how you would hold the one handed sword very well in two hands, you'd just be grabbing your other hand. Fencers hold their hand behind them for balance because their sword fighting doesn't benefit from power swings, and grabbing it by two hands for them would leave them exposed even. The precision decrease I mean is that your second hand on the weapon prevents your recovery from the larger swing you'd use, and you'd have to change your fighting stance to adopt that position, meaning you'd make slower stabs and be unable to lunge.
Also from http://www.thearma.org/manuals.htm I've looked at, medieval fighting wasn't about clanking weapons together. They'd get torn up too quickly. Their method let them deflect when they had to, and quickly go for the strikes. Not much was done about defense on the smaller scale fights because they'd expect to kill their enemy before they'd need it.
One of the problems with you and me trying things with our swords is that we're both probably practicing with those unbalanced wooden katanas, right? I'm not saying I'm an authority on anything, I'm just figuring based on what I've read.
And how would it do less damage? What would hurt more, being hit by someone wielding a sledge in one hand, or someone swinging a sledge with two hands for extra momentum? (I tried this, too. A full-power swing makes me sway more when I'm wielding a weapon two-handed.)
It wouldn't hurt more because as a bladed weapon, it doesn't take a lot of power to cut someone deeply. The weight is on the other end so you can whip the tip around fast. If you wanted to do more damage with two hands on a blade, you'd want to hold it from the other end to slam them with the weight.
If its locational damage, wouldnt they make it so your able to aim where ever you want? so you would need to know where to aim at good parts, and you'd know more as you got better. From what your saying it sounds like for fighting you just want to click and have the character swing automatically to a good spot. Why not just click and the whole battle happens? bleh. We should be able to choose where we hit, thats why highlighting would be necesarry.
Why not just click and the battle happens? Don't strawman. Highlighting their areas to hit is artificial and would be goofy looking, it works in fallout because they have the computer. Look at this video of http://www.youtube.com/watch?v=-Z3ewNnuNfs and tell me how you'd target their elbow with a swing while it's highlighted. You couldn't, you'd swing your sword at their arm and your character skill would determine whether it would hit the weak spot or not.
blocking in Morrowind was, in my opinion the best. It also left a controller spot open for magic (I think. Haven't played Morrowind in a while; lent it my neighbor just before he went to boarding school...) It makes it more like an RPG than an FPS: you don't tell your character to block, but if an attack is coming from in front of you there is a random chace that you'll move your seild to intercept the blow.
The problem is that if you have low skill, it just never rose because you'd never block. I'm in favor of the idea to make the block button instead be the block/parry/dodge button depending on your combat setup. That would rock.