A big shortcoming of the game so far is that combat is too difficult to read. This is caused by 2 main factors - the UI feedback (which Sensuki has discussed in depth) and the actual visuals themselves. Even when ignoring the bug causing characters to overlap each other, it's evident that the "readability of characters and enemies in battle is poor.
Here is a screenshot which captures some of the issues:
In it, the characters are correctly spaced and the overlap bug is not in effect. There is a spell effect going off, and the battle is partly obscured by an arch. While these situations are quite common in combat and contribute to readability issues, there are other factors such as:
Low contrast on character models. Also the colour saturation seems lower than the background. Results in characters looking spectre-like and weightless.
Not enough edge definition on character models. It's hard to see where one character ends and another begins. This is exacerbated by polygon overlap, but that can't be helped. Sprite sorting didn't have this issue.
Poor selection circle visibility
High contrast and detailing on background. Especially the tall grass blades. This combined with the low contrast and subtlely defined character models is catastrophic.
Stamina and action indicators above characters introduce further clutter. Perhaps, these should be turned off by default or tweaked? The stamina indicators being individual dots instead of one bar also appears to introduce unnecessary visual noise.
Now contrast this with a similar combat scenario in Baldur's Gate:
While the background is darker, thereby lending selection circles better visibility, there is:
Higher definition of character silhouettes in relation to background definition.
Higher contrast within light and dark on character models, giving them weight and form.
Much better selection circle visibility
A higher angle top down view reduces occlusion
darker, more defined shadows gives characters further visibility.
Please contribute to this thread with visual examples of combat clutter and we can try to discuss what specifically it is that Obsidian needs to do to improve combat readability from a graphical perspective.