Sorry, I did not read all but I hope I can still give you a qualified opinion.
The upkeep is fine as it is. To improve the system I would take out the randomness, but this is fairly easy by just make a fixed upkeep cost per round.
Instead of 50% chance of 1000 cost just change it to 100% of 500.
What I think is, that it is really bad to put the player into the choice between "wealth" and "skill". Its just very unfun to play.
You can either wear good gear and have no money or you can wear bad gear, but have better stats.
I dont see the advantage in this system, because as I said the player has to decided between two devils.
The only way to balance upceep and the worth of gold is tweaking the >Viability of Armor<. Personally I dont wear good armor because it slows me down and costs me more gold and I would rather spend the saved gold on heirloom items.
Ok, its not nice either to get 1 or 2 hitted, but it is acceptable.
To buff the value of gold the armor needs to get buffed to but maybe thats the wrong topic.
What the game maybe needs is a cool idea of a viable goldsink so that player really enjoy wasting their money ;)
Recently I read the idea of someone who said that there should be introduced Tier 4 items and the upgrade from 3 to 4 is not with Heirlooming but with gold(maybee 1-2 Mio)
I dont think that Items are too cheap generally. Ok I am still gen 1(but this is due to the sucky altchar-system, so i started from new) but whenever I have to pay for my warspear(~500) it hurts