I like the current system, but you could go either way. We discussed this at the end of beta 2 in some detail. Basically the way Derek chose is how we currently have it set up. A magical weapon is not a mundane weapon that has a spell of enchantment on it. It is instead a special process of forging and molding a weapon to give it magical properties we know as enchantment. The processes are different and thus are separate technological discoveries not related in the technology tree. Some advanced magical crafting does require the knowledge of Blacksmithing or Weaponsmithing, but they are still derived from the two processes of smithing and enchanting. 

If you look at the mundane damage of magical weapons, you will see that they are not quite as powerful in cutting or piercing, but are often much lighter and allow for faster attacks. There are still some balance concerns with Weapons of War, but other than that, the items seem to follow this basic pattern.

I think "better" is a pretty situational term in this case.

Those weapons are half "elemental typed" damage and the other half is "B/S/P typed", which means there are a few situations in which they will perform very well, a few where they will perform worse, and all of that sits atop the existing physical limitations of their damage types. Their per-level damage output is inferior( ignoring the fact that half of the damage bypasses armor).

In a very real sense, I think they are balanced well, in that they are more situational than their mundane counterparts and there are a greater number of routes to limit their effectiveness.

However, they are situated in a tree full of goodies for caster, champions, getting champions, and making buildings that gets better the whole way to the top. This is opposed to a tree full of increasingly sharper and pointier sticks, which at the halfway point become essentially useless improvements.

In short, I think it is more accurate to say "pursuing magical weapons has a greater overall benefit to the outcome of the game than pursuing mundane weapons".

Here's my problem, end of the trees do not make sense to me.  If magical weapons and armor are in fact a device independent of standard issue equipment.  Why then does the magical tree get a bonus to all weapons and armor and the warfare tree gets none? 

I think Refined Attack and Refined Defense need to be move to warfare.  The magic tree could get like techs but fitting to their nature.  Perhaps an equivalent to Refined Defense (with a different name) and it provides a bonus to 'magic-y' type enhancements like dodge, accuracy, and possibly to defense but a smaller bonus. And for weapons, I think magic could get a bonus to weapon elemental damage and +x bonuses to abilities that magical weapons posses.

Right now a civilization that shuns magic isn't viable.  Common sense...the game is about magic.  But it is fun to be able to play 'that' civilization in a world focuses on magic.  Not saying that zero magic should be an easy option, just an option.  End game, right now a magically focused army would be immune to a warfare focused army.  The warfare army just can't get the damage / armor bonuses that the magical can (ignoring spells themselves).  Warfare may have higher level troops and more of them...but their damage just won't scale like a magical tree focused one will.

Dominions 3 had a civilization like this, they still had magic...but little.  I had a great deal of fun making bunches of essentially magic resistant tanks to do battle with.

You can get around the high costs by upgrading old units or training leather clad units and upgrading them once they are trained. Not a serious part of the discussion, just thought I would bring it up for our hardcore players.