I don't like giving everyone Expertise/Power Attack, but I'll comment on the armor thing.
A long time ago on a much earlier version of these boards, we agreed that the existing rules for forging masterwork items for enchanted weapons/armor sucked. Once you could make a DC 20 masterwork sword you had no real reason to raise Craft skills, and all you ever needed was masterwork to make magical items. So, some of us came up with a Material system.
Here's the premise. There's a table of materials, each of which has a DC modifier, Hardness, cost multiplier, and bonuses. Actually, two cost multipliers (one for weapons and one for armor) and two sets of bonuses (ditto), but let's not be picky. When you want to make a sword out of a rare material, the DC of the Craft check is increased, the cost is increased, but you get extra benefits.
You see, before, the cost of the base item was nothing compared to the cost of the enchantment. Also, people didn't want to make a Short Sword if they could make a Long Sword, because the costs were basically the same but the LS always did more damage. Under this system, by using rare materials you can lessen your dependence on big enchantments by paying more for the base item. You also have a reason to use smaller weapon types if using a really expensive material.
The previous "masterwork" is now simply Fine Steel, so a Fine Steel Sword costs 10x the normal amount, has a DC 3 higher, and has a +1 Material bonus to attack rolls. That's the low end; at the top you might see Dragonbone (DC +16, half weight, +3 attack, +2 fire damage, etc.)
Some materials will give certain abilities for free (a certain very sharp metal gives Keen for free), others reduce costs (a certain fiery crystal reduces Flaming Burst to a +1 cost) or increase effectiveness (one material I have increases the effectiveness of Spell Storing by raising its level cap)
The keys here:
> Material bonuses stack with everything (so a +2 Fine Steel sword has a total of +3 to hit) As a whole, weapons get more effective, especially at higher levels.
> The most an item can be enchanted is the DC modifier of the material divided by 2 (round up); that is, a Fine Steel Sword can't go above a total of +2. This is why something needs to be "masterwork" to be enchanted, and there'll be a demand for really expensive materials at higher levels. Need dragonhide to make that +8-cost armor? Go kill one!
> Armors give DR in addition to their AC based on the Hardness of the material used. Medium armors and Large/Tower shields give DR (Hardness/10)/-, Heavy armors give DR (Hardness/5)/-. For reference, Steel has a hardness of 10, and the really dense stuff like Adamantite is up to 30. This DR basically offsets the increased effectiveness of weapons from the new rule above. It also gives armor-wearers a bonus that Bracers of Armor can't compensate for.
