Skill doesn't affect damage? If not, I need to rethink some things.
Not directly, AFIAK, though of course hitting more often and more solidly helps hurt things more. I managed to dig up
a thread where Toady discussed the attack formula, though it's outdated now surely. The new formula, if there is such a thing, is probably similar. Anyway, skill isn't in the damage calculation. Though Deon does state that "skill modifier applies to this damage," that might mean the dwarf's skill, or it might mean that item-quality-based modifier.
Although I believe your formula is either missing something or you're using a double variable, In order for (1+.2*Q)+Q=3+Q, Q=10 which makes the bonus 1.5...ish. Although if you use (1+.2*Q)+M=S+M, where Q is the supposed quality modifier (5 for master 10 for artifact in this instance), M is the same as Q but maxed at 5, and S is the check statement for a x1, x2, or x3 modification it would work.
I don't think that artifacts use the formula; they just have a multiplier of x3. Just because the numbers can be put to a formula doesn't mean that the formula is used ingame.
It's probably that no-quality items have a 1x skill multiplier, well-crafted items have a 1.2x multiplier and add 1, finely-crafted 1.4x+2, superior-quality 1.6x+3, exceptional 1.8x+4, and masterwork 2x+5. While it is true that that fits a formula, the game could just use those numbers directly rather than calculating them every time. That would allow artifacts to "break" the formula, which fits Toady's statements better than assuming artifacts have Q=10.