People frown on that sort of thing here. I'm not one of them, I say you bought the game, play the way you want. Concerning armor... you can exploit it as much as you want but there is an armor cap in place so that despite what your numbers may indicate, you can never block all damage coming in. Highest number you can achieve is 567... or 667 if you add in the hidden value for wearing a full set. So you can have an armor value of 10,000,000 and you will still receive 20% of incoming damage. There are other modifiers and it can get complicated once you start factoring elemental effects and such. Weapons there seems to be no restriction so if you want to improve an iron dagger to do 10,000 damage and take out Karstaag in one swipe, you certainly have the freedom to do so.
Arcane Blacksmith is required to smith any magical weapon and/or armor, even ones you create. So if you don't have Arcane Blacksmith, always make sure to improve your gear
before hitting the enchanting table.
But yea, I've played around with ridiculous percentages as well and when you start getting into the 'millions' percentile, things get unstable and weird.
Have fun pushing the exploit limits and don't let anyone here shame you. It's your game.
Pssssssssst... btw... you didn't hear it from me but that very same exploit your are playing with will affect your Amulet of Talos and give you a permanent Shout cooldown of zero seconds. Yay... I mean... shhhhhhhhhhhhhhh... these aren't the droids you're looking for,,,