The upgrade system for weapons is fine...but I don't think the same holds true for armor. What makes the new system for weapons interesting is that the weapons actually do different things that you can see and feel, i.e. going from the assault rifle to the LMG, or the basic sniper to the auto-sniper.
Putting on a new piece of gear doesn't give nearly as tangible benefits.
I know you can go through the whole game without changing your armor at all (at least on normal for my first playthrough), it's not nearly as big a factor statistically as it was in the first game.
But honestly, there's only the "basic" N7 gear, and one, maybe two different choices for a suit of armor, of which one is a clear upgrade and one is more of a "gimmick".
Don't get me wrong, being able to fully color your armor and such is pretty nice, but it just still seems a bit lacking.
Having like 3 or 4 choices for each piece, like one for weapon damage, one for shields, one for power damage, and one for health would have still made not nearly as much a mess, yet still offered customization options.
I know you could use the "bonus suits", but I like being able to see Shepard's face. The animations in Mass Effect play a large role in delivering Shepard's voice, so not being able to see past the Collector helmet seems boring.