Ugh, this. I love this game, but I am doing WAY too much work in menus in the middle of battles or at the beginning of a dungeon. I need to constantly be reorganizing my favorites and changing my d-pad assignments in an effort to save time - as I'm picking up new gear and spells quickly it's almost faster to just rely on the full inventory menu.
You are spot-on (if I'm understanding you right) - it should have been 2 assignments to the d-pad for left, right, and down, and up would launch to favorites. So if I had a sword and a bow both mapped to right, pushing right would switch between the two. That would be 6 mapped assignments instead of 2.
Re: the unequip function, I'm not sure why you'd ever need to unequip instead of just equipping something else.