The armor system resulted in making characters invincible near the end of the game unless an armor-bypassing critical hit was scored, which often resulted in massive injuries/death.
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I don't think anyone is arguing that AC isn't an abstraction, but I would argue that Fallout/SPECIAL's system of abstracting armor is unintuitive and forces characters to always adopt the heaviest armor unless they want to intentionally handicap themselves.
If I were coming to Fallout for the first time, my expectation would be that metal, Tesla, and power armor greatly increase protection but reduce my stealth abilities and my overall mobility. They're bulky, heavy suits of armor. I understand that PA is motorized, but I've always believed that the actuators in PA are there simply to give the person the great strength required to wear it, not to enhance movement speed and grace above and beyond their normal capabilities.
I would expect the leather and combat armors to protect me less, but to give few penalties to my stealth abilities or to my movement-oriented stats.
If we think of an attacker's skill check as determining their ability to hit a target of a certain size moving at a certain speed at a certain range, the properties of the target certainly factor into that calculation. I just don't think that the durability of the armor should have any positive effect on it.
But in Fallout, this isn't the case. Heavier armor both increases AC and increases damage reduction. It also has no penalty on stealth skills. On top of this, the DR/DT system combines to result in virtual invincibility in the late game unless the PC suffers the effects of a rare critical. To make matters worse, the gulf of difference between armor types is huge. If you fight Enclave troops in the best combat armor you can find, you will take massive damage compared to those wearing APA. Because of how good the endgame armor is, all of the enemy weapons have to be jacked up in power more and more just to make a little dent in the PC. Against all other armor types, it's Bedtime for Bonzo.
In my opinion (duh), the changes I wanted to make in F3 would have resulted in different character types having more options in the late game. Power armor variants were for people who wanted to be tanks. They could take a great deal of punishment, but they were pretty easy to see/hear coming and to hit. People in combat armor variants retained most of their movement/stealth capabilities, but couldn't quite take the heavy hits in extended combat.
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I think your boundary between "working fine" and "broken" is a lot different than mine. Yes, the armor system does actually protect characters from damage, so I guess in that respect, it does function. With regards to supporting player choice, player intuition, and general game balance, I think it fails.
Ferret and I put a healthy amount of effort into re-working the armor system for F3. It seemed to hold up pretty well in our lil' demo. That was with no DR and no AC bonuses from armor.
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DR is also something that I considered to be a systemic problem. To begin with, the idea behind the math doesn't seem sensible to me. Let's say a piece of armor has 30% DR and 0 DT vs. explosions. A grenade goes off next to someone wearing that armor. The attack does 3 points of damage. 30% of 3 is less than 1, so the target takes full damage. Another grenade goes off, doing 100 damage. The armor protects the target for 30 points of damage. The more damage done to the target, the better the armor protects. Huh?
My expectation would be that armor would ablate damage damage up to a certain point with the rest being taken by the person in the armor. E.g. I fire increasingly large bullets into a barrier. The first few are low calibre and they bounce off. The next few are higher calibre and they penetrate deeper as the calibre rises. When the bullet finally penetrates the barrier, the bullet retains whatever energy that remained after breaching the barrier. Ballistics is certainly more complex than this, but that's the general idea. There's a threshold of protection that body armor affords. Once an applied force has overcome that barrier, the body takes the rest. That's effectively what DT is.
In Fallout, the better suits of armor have both high DT and DR, and they combine to make even horrible wounds virtually insignificant. The PCs' hit points rise, their DRs rise, and their DTs rise. By the end of the game, they're harder to kill than a lot of D&D characters. A lot of that has to do with the armor.
Removing DR and revamping the stats for weapons and armor made a big difference in F3. High-calibre weapons like military-grade sniper and anti-materiel rifles were awesome against heavily armored targets. They weren't so great against groups. Low-calibre, rapid-fire weapons were great against lightly armored groups. The results seemed pretty sensible, but armored characters still gained great benefits.
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