I was wondering if playing on expert or master; chests dropped better loot. And also if you gained more experience while on expert or master.

No I think loot dropped is the same.

This upsets me because this should be a very easy thing to do, to make harder difficulties drop better loot, and it would make Skyrim play like a lite version of Diablo. The potential is there.

No, I don't believe so. I don't think it's needed, personally - it shouldn't matter whether you play on novice or master, the loot should all be leveled in the same way.

I hate that loot is levelled. If someone grinds away to make enough gold to buy a high end weapon, let them. At least have more range to the leveling. Maybe daedric is not available at level one, but maybe dwarven.

It kills a bit of the exploration, too...knowing that you'll only find in dungeons what you can find in the shops. Why not have a challenging dungeon with a high level reward?

Literally the only two things that change when you change the difficulty are the damage taken and the damage you do. That's it.

I wish those were seperate from each other too.
Cos I like dealing slightly less damage, without taking double damage...
I stick to the middle difficulty in all Beth games I play, to keep it an even playing field.
Oh, and with the mods I run, it can be very tough sometimes.
Difficulty slider is useless except for e-ego pumping.