I feel that the morale system in total war is a bit rigid. For example, something that never really happens in these games that happened a lot throughout history, particularly against enemies that respected the taking of prisoners, was the complete and utter surrendering of units. Furthermore, many non elite units in history fought to the last man. I've thought about how to represent this in Total War in an organic way.
Separate the morale into Zeal (One's desire to fight) and Discipline (The ability to keep one's composure). Historically, in Total War, things like "Unbreakable", or "Impetuous" have been used to allow for more dynamic behavior in combat. This dual morale system will open that up to more units and allow for historical tactics that aren't well represented now.
A unit with high Zeal and low Discipline might become unruly, charge without orders. This could cause for more dynamic play, for example, thing about the battle of Hastings and how the Normans tried to goad the Saxons into breaking from their defensible position by skirmishing and feigning retreat.
Being shot at from ranged, while not moving towards a fight or in a fight could build zeal instead of lower it. With prolonged ranged attacks lowering discipline. Being open to the flanks of enemies could also build zeal, allowing for a dynamic play to be made.
A unit with very low Zeal, but high Discipline, might surrender completely (if friendly units are routing/surrendering) or give ground and start backing up from the fight. In contrast a unit with high Zeal but low Discipline, if nearby units are routing/the day seems lost, might go for the more classic "fighting to the death" usually reserved for surrounded units in total war.
While this doesn't seem a good fit for the fantasy genre games, if you ever decide to make a Historical title again (And NO, I don't count Troy and I only half count Three Kingdoms), where morale and chain routing is important, this could be good.
Provincial loyalty would be great, especially coupled with area of recruitment. It could get rid of one of the big issues of Total War; the province stability hit when retaking your own region you just lost, which is likely more loyal to you than the enemy, and the extreme predictability of rebellions.
I made a suggestion to more dynamic diplomacy in the Warhammer III campaign suggestions area, but this could play into that as well. As AI would be wanting to claim provinces where they have higher loyalty.
Now as for Area of Recruitment... Tying units to their region/province of recruitment could allow for some heightened realism that could make later campaigns a bit rougher, namely a drain on manpower which would effect growth, income, and loyalty. Historically, in the Second Punic War, Gauls defected from Roman Armies in the night and slaughtered some Romans on the way out. Rome really mistreated the Gauls, built up a lot of resentments, while Hannibal made diplomatic moves to win their favor (something that could be done in game with agents.)
Just some food for thought. I hope it gets people thinking.