On the matter of upgrades, I see no reason why there can't be an Upgrade to Best option in cities. Clearly swords won't change to scythes, and code is needed so that my paladins upgrade to +4 holy swords instead of +5 swords, but that's retained by a single checkbox (Retain Specials, No Retraining, and a Time Limit checkbox (with either input box or slider) are all things I'd think of adding.)
So you DON'T need to design Knight, Knight2, Knight3, ... Knight57. Just make a Knight, and he pulls on the best TYPE of equipment. The problem happens if I have lots of copper, little tin, and a pressing need for knights - I need a way of specifying Build Fast instead of Build Best.
But back on topic... The physics sound great! Can we hope that sweeping blows by ogres, dragons, and the like send that knight flying into the troops behind him with lethal results? Does a pikeman seized by the ogre flail about while the ogre uses him as a club against his fellows?
Ahem... And just so that we're clear - each piece of equipment also includes such things as auras for mystic infusions, how it reacts to fire, where it breaks upon taking structural damage from Banshee's Wail (just guessing an effect, here), getting immolated when the horse runs smack through an enraged fire elemental?
And more importantly - IS THIS MODDABLE? Some dumbtastic half-programmer is going to throw in daywalker vampires and forget that although they don't disintigrate in the sun, they can still be disintigrated. (Or transformed BACK into normal vampires while in broad daylight - oops, there go YOUR elite troops...) Anyway, we'll need to add things of our own to the graphics at some point, will we be able to do that? (Providing your skills are BETTER than mine, clunky and kludgy as mine are. I won't personally be doing a lot of artwork, but I want other people to be able to do so.)
And what if we DO have items that alter the physical forces? A horse charging underwater, although able to breathe, should have slightly different physics than a horse in high winds on the frozen tundra, or rammed by an armored Bear Rider, or getting trapped in a giant spider's web, or being mobbed by Ghoulish Seals.
[side note] You mention PAIRED WITH a horse. During combat, will we have events that kill rider or horse, but spare the other? If there are SHORT attackers (ghouls, kobolds, rabid mice, baby seals with clubs, bear cubs) that can strike the mount but not the rider? What about TALL units (like ogres) that are more likely to hit the riders? What about mounts of different sizes, or the ability to fly?
Never mind, I've noticed I'm blathering now. I'll hush.