I think the idea is not bad.
The lack of realism is actually the thing that ticks me off most after playing a few weeks of M&B.
Swing speed and damage (resp. accuracy/damage for throwers and accuracy/shooting speed for bows/xbows) clearly should go down when you are bleeding from several wounds and have an axe dangling in your face...
And to spin this further: things like running/fatigue should also kick in. When I just ran half a mile round a castle in full armor, I should hardly be able to lift my sword (in old times people actually fought in 5-15 minute intervals - no-one was able to fight longer with those heavy weapons and armors...) and be able to kill an enemy only by the stench of my armpits...
And that I as an archer can jump around and run at will and then pull off a head shot at 100 yards is a joke as well - I should have to wait until my heart rate and breathing is down to normal.
OK - probably not possible with that game engine.
Imbalance towards ranged: not exactly. I often lose 20-60 percent very early thanks to some 0 WPF sniper-xbow-sidearm-wielding tincan, an archer buddy, or a capable thrower.
And btw - that is just what ranged were for: bleeding, annoying, delaying and wounding the enemy, so they arrived with less motivation and power and were easier to finish off. If you want melee duels at full health, go duel server.