There are actually quite a few differences, but they are subtle (mostly recolourings) and I totally get why people miss them. Anyway, the factions all have their own leather armor, and the other armor used by normal units come in around 5 variations not including the faction's colouring on them.
So the reason we have this somewhat lackluster visual representation of the faction differences is that we have customizable units. In a game with only pre-designed units, like Might and Magic 6, each model is more or less 1 graphical model. And they are also greatly limited in how many are on screen - in a tactical combat you'll never see more than 30. In this game, a single model can consist of up to 30 different graphical models, each customizable. And on top of that, the game supports 150+ models at the same time in tactical battles. Quite simply, because of the scale of the fights, and the customization of the models in those fights, it is not possible to have too many different graphical models. Keep in mind they all have to be loaded into memory all the time - strategic map also shows all armor, unlike Might and Magic 6, and the Elemental games have no loading time for tactical battles.
Let's say we wanted to do a game with total graphical differentiation. Let's ignore the manhours needed to do that. There are 20 different body types in the game - 10 races, male, female. Now let's say you want to add a plate breastplate. A plate breastplate currently consists of ~5 individual models. That's ~100 graphical models that would need to be kept in memory constantly, just for this plate breastpiece.
Each armor set consists of 5 pieces, most have fewer graphical models though. Let's say a complete set consists of 15 graphical models. We want 6 different sets, and we still have our 20 different types. That's 1800 different graphical models. We can't combine them, because we want them to be customizable.
And if you think I'm overstating things... when I modded in the shadows faction for the Stormworld / Children of Storm mods, I ended up with 88 new graphical files, and I ignored another 12, and this was just to get ONE set of unique armor into the game (no male/female differentiation, no shields, no weapons).
So.. customization is the problem. And customization is also this game's greatest strength. They faced a choice, and went down this path.
