Thanks, Mongoose. I found this statement interesting as well.
However, armor is more effective than a straight hull strength increase because it increases the effective hull regeneration rate (again by a factor of 5% per point of armor)
Don't think I agree with that one. When you research hull increases, your heal rate also goes up, at least according to the research info tag.
BTW, the reason I asked was because I wanted to understand a little better if upgrading weapons was actually more valuable than it appeared. If armor worked like Case 2 above in the original post, upgrading a weapon by 5% would do *more* of a percentage damage increase than just the 5%. (Say it WAS Case 2, and you hit for 20 at weapon increase 0% and the target has 10 armor. Then you'd do 20-10=10 damage. Upgrade your weapon by 5% and you'd hit for 21-10=11 damage, which is really a 10%
increase in your weapon strength.)
The armor sliding scale means your weapon upgrades are just a tiny bit more effective than a pure 5% per level, and this small bonus gets bigger against higher-armor targets.