While it's true that imbuing has balanced the tables to a great extent, and some non-faction arties are important in building good suits, the fact remains that faction arties are substantially more powerful and allow good crafters to make measurably better suits. An example would be the faction orny & crystalline ring combo. If you use the non-faction versions of those, you're forced to use either inquisitor's or night eyes to get to 2/6 casting. With the faction versions of those, you get the extra FC3 on the crystalline for free, which means you have a lot more flexibility in how you build out the rest of your suit. Including 2-4 faction arties will result in anywhere from 3-5 or more additional mods in a suit. These might end up being more mana regen, HP regen, mana or stamina increase, over-maxed DCI or whatever.
Being able to use the ultra-powered arties does make a difference. Some of the posts here seem to be arguing that faction arties are not super-powered. Get real. People would pay 50m to get a crimmy with an extra 5 dex; fey leggings or hunter's headdress where the resists don't suck, free DI on M&S glasses, etc. So, saying someone needs to get better non-faction arties is just dumb, when someone can go spend 5m gold on silver and buy faction arties that would have a market value of 100m+ if they were available.
I have both faction and non-faction characters, and I will make an argument that yes, faction arties should in fact be more powerful. It's a risk v. reward proposition. If you join a faction, you get access to arties, war horses and other goodies, but you need to maintain enough points to use the stuff, and if you die you're sidelined with stat loss (incidentally, why do we still call it stat loss, when it's actually temporary skill loss, but anyhow). So, for bona fide faction combatants, I think it's a fair tradeoff.
The problem is, however, that a lot of people take faction gear to build their sampires, ABC archers, PVM tamers, et al. I think that's just plain stupid. I also see the OP's problem with faction geared people attacking non-faction people. I definitely don't think that is intended; maybe the devs were thinking that a larger portion of the population would go faction, but as it stands that's just not the case.
So, here's what I would propose as a solution. First, get rid of "I honor your leadership". Sure, that's not going to totally get rid of people who game the system, but it would make the transfer of points more difficult, and I think that would go a long way into getting rid of people building PVM characters up with faction arties. I'd love it if there were a good way to prevent that. Other thing that would have to be addressed is factioners attacking non-factioners. I think stat loss at 1/2 the OJ on OJ level makes sense. The factioners have the advantage with their gear, and if they get killed by a non-faction blues, they should take a stat loss. On the flip side, non-factioners are at a disadvantage because they don't get faction arties & war horses, but they don't take a penalty if they die. Non-faction reds could still be attacked freely by anyone, and no stat penalty if blues initiate the combat (they'd be grey then, and fair game).
You guys think that would work?