First off, How many of you have Lezalit as a companion? Lezalit SPECIFICALLY mentions the use of a Rhodokian Shield Wall. Well the Rhodoks charge in the same fashion the Swadians do, or even the Nords. He also mentions Swadian Cavalry formations. So first off That defeats the "Unorganized Brawl" argument against formations because obviously Calridia uses formations. But they simply don't exist.
Secondly; I have noticed the Game itself is relatively Amateur in design ( Not an insult, its why I love it!) So then the coding for formations wouldn''t be too difficult to figure out, its simply a matter of assigning a Y value to the group as well as an X limit. As well the possibility for regiments or cohorts ( The name for the blocks of troops for the non military savvy) exists within the game itself, your party order already gives the standard build for a regiment. The question is do you want to block mixed units ( Exemplus Gratia recruits in front of veterans) Which would be tricky to code, or to block out existing units at maybe a 4x3 ratio or even a 2X1. So say you have a unit of 30 men, you'll have 2 lines of 15 long, or 3 lines of 5. This actually isn't that hard to script. In fact there already is a tight and loose formation command in the game.
Third, battle sizes would mostlikely have to be increased, but scale doesn't necessarily have to. Its VERY easy to change the upper threshold for battles. So instead of having your 13 men you can have the full 30, or whatever you chose to bring out. While I wouldn't mind scale to be larger ( Grand armies rarely fight so battles rarely get over 100 v 100) that changes a few things around. Probably for the better, but still there is nothing more perfectly suited for this game than to be one man in a battle of thousands turning the tide, through being a tactical Genius or a valiant warrior. This even opens up the possibility of a new play style, a strategist instead of a warrior. Probably a less played role, but the fact remains options are good.
Fourth. If battles are to be increased in size one thing MUST happen, Battle starts must have a wider spawn area. A Great deal of CPU stress comes from the density of actions, not the number, so actually spreading out the spawning zone into the block formations not only makes the battle larger but it will reduce the crowding and lag. Its Win Win. This will cause battles to still have the line set up, but it will be in bigger blocks. Imagine the enemy setting up in a similar fashion, so instead of an unorganized mega blob that either charges you, or slowly circles you, you have the option to move troops into a formation to prevent circling, and to force fighting. The game doesn't change in theme or flow, it just opens up more options for play style.
PITFALLS
This new way of fighting battles may result in AI retardation, and scripting to deal with this may be needed, but the AI doesn't need to be sun Tzu, it just needs simple defensive, and aggressive scripts. For example: Swadians could start with Cavalry in the front and begin with an aggressive Charge, where as Rhodokians start with a tight defensive shield cluster that moves slowly, the Nords would have Very aggressive infantry in a loose formation, Vaegirs would use a defensive Archer forward start, Khergits would use very aggressive very mobile charges. and the Sarranids could start with an aggressive cavalry charge as well. This gives the Factions their own personality, and your personal faction a combined role as is mostly intended. The personalities and combat doctrines are soarly lacking in the games presentation, Rhodokians charge blindly into cavalry, swadians just charge everything at you. Nords work, but thats because a large infantry blob is more or less what they do. The fact remains that all the factions simply act the same because all battles are the same.
This is just some food for thought, though the implementation of block formations would ONLY change the game for the better.