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Let me add: I'm not saying there can't be a sensible case in which EP actually increases the damage you take. Imagine, say, some strange form of projectile that's thin and needle-like, but with high mass (maybe long and super-dense)? When it hits a hard surface, it packs a real wallop. But when it hits flesh, it passes through the flesh, dissipating very little energy as damage, and leaving a very tiny wound channel.

Now add some armor that's super-thin and extremely flexible, but just won't let that super-needle penetrate. Instead of the projectile whizzing through flesh like a surgeon's needle, it slams against the armor, dissipating loads of energy into the underlying flesh as a massive bruise.

Okay, maybe "sensible" isn't the word; both the projectile, and the low-DR, high-EP armor able to resist penetration by such a massive and sharp "needle", don't sound like something you could pick up at the arms dealer's. But under that semi-possible concept, anyway, suffering more damage because of EP is simply an interesting consequence of the factors involved. It's one way of reasoning that the strange bullet/EP interaction is just fine as it is.

BUT, it all doesn't sound right to me as a model for real bullets – especially since these, even small ones, can leave good-sized messy wound channels, not needle-like tracks. That's why I'd prefer a damage mod >1 for all bullets...

Now, putting that aside and moving on to some solution for actual game play... Maybe something like this: 

For any attack with damage mod > 1, EP reduces damage mod to 1. That's per EP rules as written.

For any attack with damage mod <=1, EP halves damage after applying the mod. So it turns normal pi (x1 dam) into x1/2 dam, and turns pi- (x1/2 dam) into x1/4 dam.

That might work as a way of handling bullets etc. 

Heck, one could even go further, and revise EP for all situations as follows:

EP simply halves damage. For post-DR dam up to the amount of EP, apply all modifiers normally (for cut/pi/imp, for target location, etc.), and then halve that dam. 

That lets EP provide some protection vs impales and pi+, vs pi and pi-, and even vs crushing attacks - essentially, it would offer some "padding" effect in addition to simple penetration-resistance. On the other hand, the change decreases EP's value in high dam-mod cases – for example, the dam mod for imp vs vitals drops from x3 down to x1.5, not down to x1. It all balances out to some degree. EP would retain the special effect of not allowing penetration (so that impale to the vitals would still be a massive bruise, without piercing armor and cutting flesh and introducing poison etc.). 

Hm. What do you think?