I agree completely (with your whole post actually, just cherry picked to save space).
"So, I do not find the smithing function to be unbalanced at all......it correctly balances the requirement for a player controlled, higher Armour Rating and more effective weapons as levels and difficulties rise."
That's my feeling on why I like "self balancing". If my RP is that my character is a bad ass then I can do that, if he's just an average fighter I can do that as well.
"If anyone here could perform vanilla combat against multiple, level fifty, Legendary Deathlords in unimproved armour I would love to see the video "
I'd love to see that as well with one stipulation ... no healing potions during combat. I've seen several youtubers fighting on legendary who pause the fight, drink 10 healing potions, 5 stamina potions, resume the fight, then pause it again for another round of potions, win the fight then pat themselves on the back. I don't drink potions in combat so being able to improve my armor and weapons help keep me alive, I'd like to think personal skill helps as well
"As for being able to pay smithys to improve your gear.....well yes great! But then you unbalance the game by simply paying for a super weapon at level ten that shouldnt be available until you are level 40! There are ways to counter that I'm sure...like tying npc smithy skill to your game level."
Yep, you could easily unbalance the game. That's why for me I decided that I wouldn't have them make anything I wasn't already seeing in leveled chests or on npc smiths. So if I'm not seeing ebony weapons for sale I'm not going to have my level 4 character purchase one, upgrade it, and have it enchanted. He probably couldn't afford it anyway.
Though I will admit I had a level 2 character find an ebony mace that absorbed 20 points of health because of another mod .... and happily used it.