So, I specced Cole back into his "true" dagger-wielding self after crafting him the best tier-3 daggers and armor that I could. And I must say, I'm pretty impressed. Melee DPS will always be too clunky for my liking in this game (*), but with the protective masterworks and mobility talents he's not too frustrating ... and really packs a punch, too. I'll keep him this way because it's much more in-character and I always felt bad about taking his daggers away. Thanks for the tips on how to make it work! Now I should probably upgrade everyone else's old junk, too. 
(*) Seriously, fighting a bear or wyvern or similar bigger enemy means the melee spend what feels like half the time shuffling around uselessly trying to find the one, constantly-changing mystery sweet spot from which they'll actually deign to land a hit. Meanwhile, the enemy is not so choosy and will happily chew on them. It drives me nuts. Plus, if I don't babysit Cole, the AI doesn't flank with him worth a damn.
On another note, did anyone else think it's odd that, during his personal quest, Cole just passively stands by while we discuss his fate despite how much he's seething with anger and the desire to kill? Sure, it's a good sign that he hasn't totally lost himself and gone rage demon on us, but I expected a little more resistance.