This is exactly what we did in my campaign; all shields provide a Cover bonus when you're not denied your DEX bonus. In general this means it wouldn't stack with cover from other sources (a Shield spell, hiding behind a tree, etc.) although we allow a full-round action to position your shield in a way that adds to your cover. Prop the shield next to the tree to make a "duck blind", for example.
No more wondering about which armor bonuses stack and which don't. Bracers of Armor plus a shield? No problem! It has one HUGE side-effect: since it's not an Armor bonus, Touch spells don't ignore cover.
Want to keep people from landing Harm?
Want to stop those pesky Melf's Arrows, Flame Arrows, Orb spells, and such?
Tired of all those incorporeal hits?
Get a shield!
(Well, actually we changed "incorporeal touch" to be simply "incorporeal attack". It's like a touch attack in that it ignores armor and natural armor, but it also bypasses Cover as well IMC; they're still stopped by Force effects, though, so it's balanced)
Notice I mentioned a negative: "only when not denied your DEX bonus". If you're not expecting an attack, your shield won't be in position to block. If you're flanked, you won't be able to use the shield to block all the attacks. If you're Held, your shield is just plain useless.
Suddenly, that Uncanny Dodging Barbarian seems a lot better as a choice for a shield user. One nice side effect is that you start seeing more sword-n-board fighters again. It was annoying that every fighter I saw was either a 2-hander or 2-weapon style.
Oh, and like the table DanMcS used, we added a 1/10th Cover line for bucklers. It corresponds to "minor obstructions", like if there's a chair between me and the enemy. Nothing we can't fight around, but it interferes a bit.
In general, it's worked beautifully.