edit: Ugh, 5 replies while typing this up, reading thread now.
Okay, long post incoming but I need to lay it out to make any sense.
Actually, first two things I think apply to the entire discussion, not just my suggestion.
1) Armor is a damage mitigation mechanic so any discussion/changes regarding it have to include the Attack Multiplier system, at least peripherally.
2) Include how Mark levels will affect things, right now a single Mark level of difference can result in 40% difference in damage being done due to armor increasing as Mark goes up. My current suggestion for this is that a targets armor is always equal to the attackers Mark, IE: A Fighter Mk II being attacked by a Raptor Mk I only has the armor of a Fighter Mk I.
Now, for my suggestion. Keep the current attack multiplier system, just add a second set for hull size. So ever ship in the game would have a Hull Type and a Hull Size. For damage calculations these would stack multiplicatively.
The current modifiers would all have to be deleted and every ship would be given a standard spread of attack multipliers as a starting point.
A 'Baseline' ship would get 1x against ships the same size and smaller 0.8x against 1 size larger, 0.6x against 2 sizes larger, etc.
A 'Bomber' ship would get penalties against smaller ships and bonuses against larger ships.
An "Escort' ship would get bonuses against smaller ships and bigger penalties against larger ships.
And then ships would get tweaked based on their specialty, usually with modifiers against hull type.
For example, a Fortress, Hull Size Large, Hull Type Defence with attack multiplier Tiny 3x, Standard 1x, and Polycrystal 0.1x.
A Fighter, Hull Size Tiny, Hull Type Standard, with attack multiplier Large 0.5x, Defence 1x
A Bomber, Hull Size Tiny, Hull Type Polycrystal, attack multiplier Large 3x, Defence 1.5x
The Fortress attacking the Fighter would do: (Tiny)x(Standard) (3)x(1) -> 3x Damage
The Fortress attacking the Bomber would do: (Tiny)x(Polycrystal) (3)x(0.1) -> 0.3x Damage
The Fighter attacking the Fortress would do: (Large)x(Defence) (0.5)x(1) -> 0.5x Damage
The Bomber attacking the Fortress would do: (Large)x(Defence) (3)x(1.5) -> 4.5x Damage
This re-work makes the damage system more intuitive and 'solves' the armor problem by leaving it intact. The "Armored" and "Armor-Piercing" ships currently would be moved to their own hull type, call it 'Armored' and either given really high HP and Armor-Piercing ships a damage multiplier against them, or give them normal health and everything not Armor-Piercing an attack penalty against them.
That leave the currently Armor intact for balancing purposes, which I like. The thing is, there is nothing wrong with Armor, the problem is the current Armor mechanic is trying to do two different things at the moment, be a balancing mechanic that stays in the background for most players, as well as be a special mechanic where you have distinct "Armored" ships and "Armor-Piercing" ships.
Adding the Hull Type and reworking the Attack Multipliers fixes this. Armor can go back to being a behind the scenes balancing mechanic and you can add the "Armored" hull type to keep that special mechanic intact.
The biggest advantage of this is it should keep the feel of the game intact as we are not actually changing any game mechanics, we are just adding another Hull Size attack multiplier to go with the current Hull Type one.
The down size is this is a full rework of the numbers as every attack multiplier for every ship would have to change.
It does add one more multiplication to the damage formula, but I don't see that being a problem with everything that is already going on in that formula and I would think is relatively easy to add as it would be pretty much the same code as the current Hull Types code.
TL;DR: Keep the mechanics the same, adding a Hull Type attack multiplier. The armor system stays intact. 'Armored' and 'Armor-Piercing' ships are moved out of the armor system and into the Hull Type system as an Armored Hull type. Then do a balance pass of all ships Attack Multipliers and Armor.
edit the 2nd: Bah, Tech essentially posted exactly the same thing. However, I want to repeat that I think the Armor system is fine as is and works as a balancing stat. It just has to stop doing double-duty as the mechanic that makes ships "Armored" and "Armor-Piercing". An "Armored" ship would be moved to hull type "Armored" and have the usual level of numerical armor for a ship its size.