I made Morrigan an Arcane Warrior and put her in armour. Morrigan is all about practicality. She would understand it is better to be properly equipped and less likely to get knocked out or die. Otherwise I stuck to mage robes, archon and then upgraded ones from Flemeth. Mind you, I was never sure about those because I wondered if it might make it easier for Flemeth to find her. After all Morrigan gives you a ring that makes it easier to locate you.
Sten had his sword in his second slot - I felt it had such great cultural significance to him that he should have it with him at all times.
Beyond that I tended to put people in whatever seemed most appropriate. Zevran kept his boots until I came up with something appreciably better - usually a set. It is one thing trying to keep it true to the character but not at the expensive of effectiveness. I think all the characters were sensible enough to understand that. However, I wouldn't necessarily sell the sentimental items. I had a whole stack of them in my chest in DA2. I was pretty miffed Aveline accused me a selling Wesley's shield; if she'd wanted it back she need only have asked.