A_Mustang: my guesses would be you're playing on reduced damage / the enemy troops have much lower skills than the warband MP classes / the AI doesn't know how to attack in the correct direction at the right time and distance to cause maximum damage...
I think that the armour seems to work pretty well as it is, and rather than change the way it reduces damage, instead reduce the prices of basically all the heavier armour especially gloves and boots; the prices might be alright for single player where you can just grind until you get the cash, but hardly anyone uses heavy armour in multi player at the moment, meaning that the average game has less variety (on a related note, it looks really silly when nearly everyone on both teams uses the exact same generic leather armour, because it is probably the best value for money - please have faction specific gear for the most commonly used armour tiers). It might help balance to reduce the damage values slightly on the big axes and bardiches, so they don't always seem to totally ignore armour; or alternatively increase their prices, as others have suggested.
The problem I see with making heavy armour more effective but keeping the same price is that the godlike players would be able to become even more immortal, creating a feedback loop that could make the match uninteresting for the less skilled part of the players. Already it can be quite difficult to fight back against a Swadian or Nord team that has won a bunch of rounds in a row and are nearly all mail clad - which I think is quite a good effect like it is, but if armour is greatly improved it could become annoying. I think the game play would benefit most from having the heavy gear more accessible to the player if they compromise in other areas, but that it doesn't give a huge advantage or allow the player to be too careless. I also think that most of the armour should be fairly close in price and stats around the middle of the range, rather than adding many very expensive versions that will hardly get used.