I like your assessment of the Lighthouse fight and I agree with your rant about "realistically" early game.
If weapons were reworked so that the strongest and weakest weapons in the game did not have a huge difference between them, then both looting, crafting, trading, and gold all become useless. Why would I bother learning how the crafting system works or saving up gold to buy from vendors if I'm only getting a 5 point damage boost at the end of it? Imagine identifying all your loot if you knew that no significant improvement could come out at the end of it.
There needs to be a huge range between a random weapon you find and a great one you buy or craft in order for these major systems to function, so the difficulty of the game must be somewhat independent of the damage from the weapon you are using.
I think one thing that can be done about the strength of weapons and the interest of players to pursue loot -- and that's already the case to some degree -- is not to scale them in terms of linear power (i.e moar dps) but also in variety and usefulness in various circumstances.
Weapons and armors that might not vary tremendously in damage or protection but provide different secondary bonuses, resistances, etc. are a good thing. For example, I held on to a pair of boots in the early game because it gave a nice boost to sneaking while I already found alternatives with 3 or 4 more ranks in protection.
It seems they already have introduced more of this type of items when they reworked the loot matrice and I think reducing the disparities between damage ranges but increasing their particular advantages like chances to stun/petrify/poison/freeze, types of damage, bonuses to talents or skills, etc. might do great things to both balance and loot.
I'd have an interest in paying lots of gold for a weapon that does not do a lot more damage than what I already have but would fit my character's build perfectly in terms of secondary characteristics and tactical possibilities... and I would probably hold on to it longer than a straight "improved damage" item.
That way, you might also want to level your crafting abilities to add some "fire damage" to your favourite sword in case you encounter skeletons immune to slashing, add some movement speed to your rogue's boots at the cost of reduced armor, add a stun effect to a mace wielded by a warrior with no other crowd control abilities, sharpen a low damage dagger to provide a a high chance of critical strike, etc.
