If you add 300 varities of swords, some developer has to sit there and create 300 varities of swords.
That argument won't fly in one regard. Stardocks intention as I understand it is to give us a system we can use to make "our" swords. Even if they include only 6 types at launch, those will mutate and evolve into thousands of unique examples within a week.
In order to actually make 300 varities distinct, they need enough stats to differentiate them (and the other weapon types)
Not a problem. It is just a matter of defining your parameters. A sword can only have so many attributes. And if it deviates too far from the base pattern, it is no longer a sword. Basically the only two questions you need to ask are "How sharp?" and "what shape?".
There will need to be several sword models so they look different, otherwise people will complain about that
Again, not a problem. Model me up a 4 foot longsword and give me some sliders that change the size and shape of the sword. Even if all I get is the ability to adjust length and width that is more than enough to turn that longsword into a hundred sword variants. And that is before you start adding things like ferrules, pinions, ricassos, basket hilts....
Someone will need to check that sword #247 didn't accidentally get scores that are too high and is thus clearly the strongest sword in the game.
No sword can be overpowered unless you blatantly imbalance its stats. A rapier might do crazy piercing damage, but that took a lot of sacrifice in other areas. A rapier would never be able to effectively block a greatsword worthy of the name. But then a greatswords biggest disadvatage is its size and weight. Not tall and strong enough? Then you can't use one.
With player created content we would face the problem of moderating our own creations. But there will probably be some set of checks and balances that prevent you from simply upping the damage to 9000.
On top of that, using a slash/pierce/etc model means everything needs to have stats to model its defenses against those types.
Not a problem. Galciv 2 has a weapon/armour system exactly like this. We would want a bit more complexity, but all you really need to know is rock beats scissors.
Finally, some poor user who picks up the game is going to have sort through 300 swords to figure out what they want to put on their new unit.
How is this bad? If you know what you need you can get it immediatly. If you don't know then you will have to examine everything anyway to see whats what.
This is WAY beyond practical levels. (And of course if it's not going to be a factor in a large fight anyway, then what's the point?)
Very large battles must be simplified. But that does not mean you can focus on the little details when and where they become important. In a one on duel it is very important to recognize that your halberd is 1 foot longer than your opponents. This gives you a bonus to reach, hitting power and a variety of other things.
Zoom out to a battle between 500 halberdiers and another 500 halberdiers. What does it matter than one side is using longer halberds? Not much, but when both sides charge each other the longer halberds are going to hit first. A trivial detail in the grand scheme of things, but in the right situation it can make all the difference.
edit - In response to the edit, modelling neck damage? I really doubt anybody has time to develop that type of thing and still get the game out in 2010.
Hundreds of games out there are advanced enough to recognize the effect of headshots. All you need is a second smaller hitbox placed slightly lower and there you go. Of course this assumes your game uses hitboxes in the first place. But even if your game revolves around dice rolls, all you need to do is add one more variable.
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On a side note we have exaustively discussed these topics in the past. You might enjoy reading through these two posts I made a long time ago:
https://forums.elementalgame.com/329603
https://forums.elementalgame.com/330528