I disagree with 1.
In general, I don't like relying on 'diminishing returns' formulas. I would rather have both Armor and Resistance be a flat reduction in damage, or a percentage reduction in damage. Otherwise it's very hard for me to know what benefit I am actually getting when I get +50 armor/resist. I'm not certain what the formula is behind armor, does anyone know?
Solving the resistances problem is pretty straightforward - just limit what stats you can get from what equipment.
Only allow resistance on Chest, Ring, and Necklace. Each of which is capped at 30% resist for one element, or 10% resist for all.
