First of all, hello everyone.
So, regarding armor... for one thing, I think there's another system some games have used, which is the bronze->iron->steel->mithril progression [EDIT: Ninja'd]. Now, I'm not suggesting that form the basis of the armor hierarchy, but it's important to keep in mind that it's not quite as simple as "these armors are made of metal, and are more protective than non-metal armors". Now, one thing I'm very excited about in this post is the mention of forms of armor like the gambeson, brigandine, and lamellar, which are usually disregarded in fantasy games despite the fact that they were historically used by more soldiers than mail or plate armor in many armies. The Romans for example used lorica segmentata in certain periods, which is technically a form of laminar armor, if I remember correctly, and I think a type of laminar armor would be another cool thing to include. Other little options that I would love to see is the choice between a full mail hauberk and a smaller byrnie, or the decision to sport plate armor with basic spaulders or the more prominent pauldrons you see in many fantasy settings.
Now, the "dead zone" of medium armor is to me a mathematical question more than an ideological question in many ways (though there is some hint of min-maxing perhaps, and that's something that must be confronted at large). If light armor gives a protection bonus of 5 but a mobility bonus of 10, and heavy armor gives a protection bonus of 10, and a mobility bonus of 5, maybe medium armor should give 8 or even 8.5 in both instead of 7. Overly simplistic, but you get the point. The "mages can't wear heavy armor" restrictions are one way to bring medium armor back to a relevant status, but certainly I think the main reason that medium armor is unappreciated is that min-maxing is usually the rewarded strategy (though hopefully that will not be the case in Project Eternity).
One more factor that is often disregarded is the potential for mixing and matching different types of armor. Assuming heavier armor bestows a higher protection bonus but a mobility penalty as well, should that be proportional across armor components? Wouldn't torso armor generally be a better protection than limb armor, for example, but limb armor would have relatively more sway over mobility considerations? The perils of such a mechanic would of course be the prospects of all characters opting for heavy cuirasses and lighter limb armor that allowed freedom of movement. Most current systems have treated different armor pieces as proportional components of the same whole, and perhaps changing that for the sake of realism would sacrifice too much in the way of interesting balance.
Another related question that I see more often is that of "realism vs. balance", but I usually find that to be a false dichotomy. Real life (and history) is the most balanced game ever, and it's only ever a matter of how many variables one wants to practically include in an RPG that makes the pursuit of either one at odds with the other. In other words, does something like monetary cost come into play regarding balance? Really, what is balance though? Is it merely a state in which each player has an equal probability of winning every engagement? Sounds like a pretty boring game to me. Well, then what decides who wins? Is it just skill in eye-hand coordination, or real-time strategy, or advance planning via optimization of the game's mechanics? In most games it's some combination of the above, with an emphasis typically on the latter in traditional cRPGs.
Now, I've kinda gone off on a tangent, but my point is that balance is and always will be a subjective matter. Thankfully it seems the developers may have acknowledged this and instead framed the debate in terms of realism vs. nostalgia instead. For me while I think most of today's "RPGs" are quite mechanically deficient- and thus looking back to the golden age around the turn of the millenium could do some good- I do equally want a game that is revolutionary in some ways, which means making some bold choices. The fact of the matter is that if you want to play a carbon copy of a classic d20-rules cRPG, you can just dig BG or NWN out of your closet.