The glass armour or daedric armour that can be found on bandits late in the game is related with the poorly designed game levelling system. It's supposed to give even high level players a chalenge but all it manages in the end is to give the players and easy and accesable source of cash. If in need of some quick drakes, just go on a trip to another city and you're bound to get jumped by at least 3 or 4 well equiped and well armed bandits. In one of my games, I usually stripped bandits bare of their equipment after killing them and left it lying on the roads. Since I was always over-encumbered when I tried to collect their armour the first time, I usually left their armour and weapons lying next to their bodies. Since items don't dissapear, I always have a reliable source of easy money whenever I'm making my way to a certain city. Add a charm spell to make the merchant give me a better price and you can make a fortune.
One mod that alters this levelling system is Oscuro's mod, which reallyt makes the game more playable and enjoyable, correcting some other mistakes the devs made, like merchants who never run out of money and a non-existant economy in Cyrodiil.
I really liked the economy idea. In a game like Oblivion, you should be able to become whatever you want, not just an adventurer or weird guild member. Being a merchant should really be an alternative to being a warrior. Anyone who's played Mount and Blade knows what I'm talking about since the system you mentioned is the same one as in Mount and Blade (minus the ships and inns part).
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 I approve of this mod.
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