I wish we could somehow cut off the first page and a half of flamage on this thread and transplant it under a different topic header. 
Alas such things are not possible, all we can hope to do is too endeavor to soldier on with what has become a great brainstorming session.
However, since the crafting/trading topic has come up again, perhaps we should take the opportunity to address it with some depth; its obviously something people care very much for.
I suppose the first thing we have to think about is what sort of behavior from this section of game we should be seeing (ignoring difficulty for the time being).
The ideal behavior will require caravans to be generated on the world screen and travel along it. Part of it depends on how the fortress falls along the caravans route. If Caravans are traveling between location A, and our fortress, and those are the only routes, we should see the following behavior:
A-Fort Caravan:
Such a caravan will likely almost always be bought out by the player. It should only bring what it knows or suspect the player will buy. After some time is should have a good idea of what the players purchasing capacity is. Furthermore, it should only buy goods that it could then turn around and sell at point A for a profit. Perhaps this means that it may only accept higher quality items, perhaps it only takes iron items (maybe point A has no iron). Maybe they don't want clothes or cloth as point A exports these in great quantities.
After a few seasons, the player should start to see a pattern. The caravan would bring mostly items that they wish to purchase. The amount of items the caravan would bring would be enough to nearly clear out the player of the items the caravan is willing to accept, or at least clear the player out of the amount of items that he has shown he is willing to sell.
If its profitable for the merchants, they would start bringing more wagons along. We could start seeing that the fall caravan would see 12 wagons bringing in booze, and then one wagon leaving filled with golden crafts that we have made. If profits are not to be found, perhaps we are not interested in cloth, and that is the only thing of interest from point A is cloth, and the player never wants to buy cloth, a caravan from point A may stop coming.
Note in a situation where a caravan that goes A-B-C-Fort, we can treat it all as C-Fort, where everything A and B supply and demand are also supplies and demanded from C. The overhead costs (A and B are farther, so it cost more to transport there) for items from A and B would be higher though, so you might have to pay alot for that iron anvil imported all the way from the dwarven capital.
(A quick note, the fort in these situations is at the end of a route, the caravan would essentially just turn around and do the whole thing backwards after they leave, ie: A-Fort-A or A-B-C-Fort-C-B-A).
In a situation where a caravan goes A-Fort-B-Fort-A, essentially the Fort is along the middle of a route, we will see mostly the same type of behavior. The main difference is that there is more flexibility in how the caravan could make a profit. Perhaps the same caravan would come in Fall, and then again in Spring. In Fall it would be coming from A, and in Spring coming from B. At each time it would accept and bring different items.
A quick note. Alot of this behavior (the motivation of the caravan masters) could be abstracted depending on how complex Toady ends up making the global economy.
So how does all of this add up to a better gameplay experience?
Well, caravans should bring mostly only items that the player is going to buy. Perhaps the first few caravans that come buy don't get it quit right, but the caravans are still learning at that point. Each caravan should have someone who negotiates the content of the next caravan, as currently works. I don't think they should be called liasons (that implies they are official government officials), and I think in most cases the caravans would be simply merchants looking to make a profit. Perhaps the dwarven caravans are headed by some dwarven official but in other cases it should simply be negotiated withe the "caravan master."
Second, caravans will be selective about what they buy. There is alot of ways in which they could be selective. They could care about quality, material, quantity (don't want to buy more than a certain number), or just what the item is (mug, toy, weapon, ect). Of course it could be a combination of all these things. Some things may just be valued less, other things they may not except at all. Maybe they value rock crafts much less than metal crafts. And then maybe they do not even accept cloth items. Just an example.
The result of this is that the player would not be able to simply churn out crap. They would have to cater the caravans, and as they sell more stuff, the caravan capacity may increase. I think all of these things would make the whole trading and crafting feel not only much more balanced, but much more organic as well.
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