Logically, that depends on your character. Some characters may stick with an iron sword, but that doesn't mean that every character has to.
Also, some people (most people probably) don't roleplay, and as such when they find "amazing equipment that is unique and awesome" - stuff like daedric artifacts, that are meant to be awesome gifts that are super powerful - and find out that their Skyforge Steel Sword (Legendary) with 2 enchantments is much better, thats a little disapointing.
This. While roleplaying with a rusty sword all the way through is fine for a few hardcoe RP people, I suspect most players of Skyrim were rather disappointed with the 'exceptional' and 'unique' items that appear in the game. As mentioned already, and many times before in many, many, many threads on every Skyrim forum in existence... the way crafting works in the game mostly ruined the fun of the loot you find from dungeons and quest rewards. I roleplay to some extent in any game that encourages it, but I am also enticed and urged onwards by the possibility that the next master-locked chest I open, the next Draugr Overlord I kill, the next long and arduous quest chain I complete... may reward me with something significantly better than anything I already have, at any stage of the game. Sadly, this aspect of gaming is utterly missing from Skyrim, and I sorely miss it. The only reason to clear all those dungeons out there, is to sell the loot for gold. And after you already have 300,000 gold and nothing to spend it on, then what? Meh. Not much motivation or inspiration to keep on going, there.
If they had left crafting as a simple method of adding minor to moderate improvements to your weapons and armor, and improved the amount and qaulity of random and unique items in the gameworld, including set items, magical enchanted items, and true rare/unique items, all of which may have the possibility of being better gear than what you can buy or craft, then Skyrim would have been a vastly superior game, in my opinion. Dungeon diving would have had a lot more replayability interest, and I would always run them with that feeling that "there could be something nifty anywhere ahead, so lets go clean this place out and see what we can find!" Instead of "oh, ok. another run through this same old dungeon where I know there will be nothing for me but some more gold I no longer need." Meh.
It probably would have been easier for them to balance the game and the monsters you fight with this kind of system, than the current one where all the skills, perks and crafting exploits (or whatever you want to call them) quickly make any difficulty in the game a complete joke. Done right, a proper loot system, with properly reigned-in crafting capabilities, would put real challenge back in on the higher difficulties, and give the player an interesting and exciting incentive to dive into those dungeons and improve their characters to be able to defeat the harder monsters in them- instead of, as others have related, just spending a couple hours beefing up a craft and quickly having the best items it's possible to get, game over.