Yeah, this really doesn't make any sense. The best way (according to traditional fantasy lore anyway) to cast spells is standing still with a robe and maybe a staff, chanting some evil shit. Not kiting enemies around the battlefield while wearing plate armor on a +6 initiative warg with a +4 initiative dagger.

Agreed; with the OP's suggestion as well.  This is also an area in which addressing initiative will assist in appeasing the imbalance between it / movement / and range (and dodge).

I was just about to bring this up again. 

Modifiers on weapons should only be negative.

There should also be a couple more encumbrance categories, and encumbrance should negate dodge as well as initiative.

Haste also needs a good beating with the nerf stick.

Yup.

We've talked about this before and I've asked Derek about this in the past.

Here's the deal on this and it makes sense from an actual fun factor even if it seems less elegant on paper:

All units always have weapons.  Therefore, the balance on initiative is achieved by looking at what the average weapon does. 

The idea being that, from a percentage change to initiative, you are better in having a middle starting point and go up and down than to have everything take you down.

So the way to look at it is that the short sword is +3 initiative better than the average weapon.

Obviously, modders can do what they want. But I will be the first to tell you that the "Fun" effects of having everything apply a negative initiative might make things a lot less enjoyable than you might think because of the large changes you'd need to make through the whole game to make this all balance nicely.

Makes sense, but what doesn't make sense is why spells could be cast more quickly/slowly because of the weapon you hold. Right now the system can be "gamed" by giving your spell casters faster weapons just to speed up their casting.