Hitpoints aren't wound levels and beating armor class does not mean hitting someone with your weapon, and damage isn't wounds, because if they were these things, they wouldn't make any sense. The sourcebooks take care to tell you that these are nebulous measurements for how healthy / prepared / whatever you are, how difficult it is to make you less so, and how much less so you have been made.
But translating these nebulous qualities to actual in-character effects is difficult, so most people interpret them as wound levels / armour / wounds anyway, and thus end up making no sense. Because then you have people who can withstand the kind of injuries that kill normal people and not feel them, and feel perfectly fine right up until they're bleeding to death. And armour that makes you harder to hit.
Even if you assume that not all "hits" are hits and not all "damage" is wounds, since you're bleeding to death when you run out of hitpoints, *some* of it must be. So why are there no wound penalties?
The effortless magical healing also sucks, because it makes almost dying meaningless. You can knock back a potion, and you're perfectly fine. (Resurrection also makes *actually* dying meaningless, for that matter.)
Some suggested house rules, just so this isn't a pointless bitch session (I used some of these in my undersea campaign):
* armour reduces damage instead of adding to AC
* let critical hits have interesting special effects instead of doing a gazillion damage -- let people cut the hack'n'slash short by decapitating their foe, stabbing it through the heart, hamstringing it, knocking it out, etc. I think some DMs kind of do this anyway, if the combat is getting boring.
* divide hit points into a few levels, and apply wound penalties (I think I had 4 levels and penalties of 0, -1, -3 and -5 -- but you could be much more harsh. :D )
* make some percentage of lost hitpoints never come back, and give people permanent scars and wounds (man, I wish I had done this!)
* Make people pay through the nose for resurrection (assuming you allow it). In my game, resurrecting someone required sacrificing someone else's life, and they came back with a permanent -3 (I think) to each of their physical stats. It's *death*, dammit; it should be *notable*.
The magic is a whole other kettle of fish; I'd drop the spell levels and preparing of specific spells, and go with a fixed number of fluid slots that you can use to cast any spells you know. I think there are rules for psionics that do just that. If you don't want to nerf the difference between wizards and sorcerers, you can give them some other magic flavour thing in exchange. (Example: sorcerers are spontaneous, so a sorcerer can try to cast a spell he doesn't know, but it requires a skill check, and uses twice the normal number of slots. Wizards are good at structured magic, so a wizard can prepare specific spells in advance (like he would now) and gain some kind of benefit (the spell is more powerful / it goes off faster / it uses fewer slots / etc.))
...this was supposed to be a short post. Somebody take this keyboard away fr