OK, I know this topic has come up. I've heard a ton of opinions, and given it a lot of thought. Personally I think Bethesda just didn't have time to fully implement something before game release, but with enough attention maybe we can see a patch, or a talented modder can create a script to allow something like this...

HOW NPC Blacksmiths could improve weapons/armor without ruining game balance (and adding realism and RP value)

1) All Blacksmiths should be able to improve Leather/Iron to "Superior" condition, and Steel to "Fine" condition.

2) "Expert" smithing trainers, i.e. Balimund in Riften, can improve Leather/Iron/Steel to "Superior" condition.

3) "Master" smithing trainers, i.e. Eorland Greymane, can improve Leather/Iron/Steel to "Exquisite" condition.

4) Only the PC can attain Flawless & Legendary condition through training (leaves a solid reason for those who choose to focus on smithing, the best gear is still only available if the PC dedicates their life to smithing)

Cost for services is exponentially increased, along with a "wait time" for the service rendered. Something like;

"I can sharpen that iron sword for you to FINE condition for 500g, and it will only take a few hours"

Superior would cost 2000g, and take a day.

Exquisite would cost 5000g, and take 3 days.

I don't know all the smiths in Skyrim, but;

Only Elven smiths should be able to improve Elven weapons/armor

Only Orc smiths should be able to improve Orcish weapons/armor

There are no dwarven smiths, so only the PC can improve Dwarven, Daedric, or Dragon.

This system would still allow people to dedicate time to smithing if they want these levels of gear, but I believe for the VAST majority of Skyrim players we would be glad to know that smiths sitting at grinding stones for 4+ hours a day actually know how to sharpen a blade, and are happy to do so for some coin...

If you agree please reply. Let's get enough attention to catch the eye of someone, Bethesda or Modder, who could make this happen...

I agree that certain NPCs should have had smithing (and enchanting) services, but they should be noticably weaker than what the player can make. I think Exquisite is taking it too far, maybe.

This is a great idea. Makes Smithing far more realistic and just generally, better. Eorlund Gray-Mane is supposed to be the best blacksmith in Skyrim, yet he's unable to improve armour? Ridiculous.

I'd rather see crafting give us more customization options than this.
like +attack speed, +stagger, etc as alternatives to a flat damage boost.

I really don't mind that I have to temper my own gear.
I can understand the issue for roleplayers, but I feel like that's a small group and there are a reasonable number of workarounds on the PC.

As was mentioned by another poster, Eorland is "the greatest smith in all of Skyrim". Exquisite is still 2 levels below what is possible for the PC in my model. Is that really taking it too far? I would even say that he should only offer that service after you join the Companions, or maybe even become their leader... so it's not like a Level 1 is going to be getting an Exquisite Skyforge Steel sword....

Gotta disagree... I would hate to be able to make my kitchen knife have a better chance of staggering someone... and I don't think roleplayers are a "small group" when it comes to the Skyrim player-base... if anything I'd say they make up 70+% just based on the fact their are much better action/adventure style games out there... Skyrim is serious RP IMO...

I agree about the Enchanting, and probably don't protest about it as much as Enchanting levels so easily (compared to Smithing), and isn't as necessary to compete in Master difficulty... but you are right, Farengar should be able to do basic enchantments... leave the highest level enchantments for PC's who specialize...