I agree with the OP, and find this aspect of the game about the biggest single negative to the fun of the game for me (perhaps it is my wargamer roots :P ). IMO commanders should matter *much* more than they do now, especially the army commander; besides choosing tactics they could add to morale or give direct bonuses to casualties inflicted or taken per round of combat. As is, I've sadly seen even rank 0 commanders[B] routinely defeat far better commanders (20+ ranking) if they have a little bit of numerical superiority. Better commanders should definitely add a *big* boost to morale and perhaps reduce the morale of foes.
As with some others I'd much rather see this feature addressed in a patch than in a mod. Troop type should probably have a larger effect as well, with heavier troops generally having more staying power. Just my 2 cents, but it really seems odd for poor commanders to do so well and "great" commanders to be virtually worthless on the battlefield. Most of the rest of the game I really like, but this part could really use a big change.