I think the flaw is were you can just improve your smithing and skill with on item, which wouldn't be allowed. A great Smith wouldn't become great by making daggers because swords and other objects require a different level of skill. He may become a master of making fine daggers but that's about it.
The only problem a great blacksmith faces is:
"Why should I create anything?"
For one, unlike Oblivion, everything stays at their top shape, so you don't have any reason to tamper with the hammer
Second, the only experience you get for smithing is by forging something. You don't get any experience by upgrading
Third, once you DO make something, do you even need to make anything else? For example, let's say that you want to equip yourself and 3 other companions with a full set of armor and weapons, which includes:
1. Helm
2. Armor
3. Gauntlets
4. Boots
5. Shield
6. One Handed Weapon
7. A Bow for good measure
For all that, you get to create 28 items. Now, how many levels do all that take you?
Let's say you want to make the set for other 5 companions, you'll get to create 35 extra gears (for a total of 63 crafts). How far does it take you?
Not very far, that's for certain. The only way to improve smithing is by forging things, but once you forge things that you need, you don't need to forge anything else, which effectively caps your ability to move forward. Forging more to allow you to get better is nothing better than power leveling