An army with combined arms may have to struggle through the early game but in the end it's definately worth it. It's usually like that with Axis. Survive the early game, pay attention to your unit preservation and you should be fine in the late game.
People go for M3 cheese because you can achieve easy and quick victories. Why? Because Soviet units are designed as hard counters. You can finish a match much quicklier by using M3s + flame engis instead of going for a basic 4 Con into T2 with Maxims, Mortars, AT Gun. If executed correctly, the T1 strat is powerful, if you fail then your lategame will be much weaker compared to the basic Con + T2 opening.
Volks and Conscripts are the backbone of your army. They are not supposed to deal crazy damage. They act like a damage sponge. Conscripts are meant to go into buildings, stay in heavy cover give for example snipers the time they need to deal damage. Same goes for Volks. They are on the frontline to buy time for your Fallschirms, Obersoldaten to deal the damage. Both Volks and Conscripts are among the units with the biggest amount of health.
Why would you need to upgrade them if there are units which are much more effecient at dealing damage but need someone who blocks for them. That's the reason why those damage dealers are so squishy (snipers, Fallschirmjäger, etc). It would make them totally redundant.
This are core game mechanics which should not be changed in my opinion.
OFF TOPIC: I disklike tanks who fulfill both the AT and the AI role for the same reason, units who excell at everything are stupid. (*cough* ISU).
Captain with double bazookas and AT guns work just fine. The more the game progresses and the more the axis player relies on pumas, the better your situation gets.