There actually is an encumbrance system in place.
Yes, they move slower...but what I meant was an encumberance system in terms of combat and equipment, i.e. the inability to hit anything with your weapon (or actively block anything with your shield for that matter) because you have nine sets of sleeves on your arms and you can't move them anymore, much less aim. The D&D style hitpoint system that DF shuns is highly unrealistic, but a D&D style encumberance system for equipment with pentalties on to-hit rolls is pretty realistic (and not FPS intensive, as it's only used once per attack).
It's possible that DF actually already does have one (in many systems, an "armor use" skill is for lowering encumberance due to armor, not sure if that applies in DF), but if so, it seems the benefits of the extra armor outweigh the costs because the encumberance penalties are unrealistically small or armor use skill negates them too easily.
Hauling implausible objects certainly seems necessary, but it doesn't mean implausible gear is also necessary. At the moment, the ethic is [WEAR_RIDICULOUS_ARMOR:PERSONAL_MATTER], which I'm actually OK with...if you want to mod the game to make fighting easier, you can choose to put ridiculous gear on your dwarves. But don't pretend you're not playing an undwarvenly cheesy mod.