The battles...
Th best would be a inventory system like final fantasy tactic with more slot available for equipement. necklace,rings, bracelts, left hand, shoulder pads.
Each item would give you one unique ability. It could be a skill (dash, whirlwind,slash,pound, fireball, heal, summon slime, meditate, cure, blind, slow, teleport) or a passive ability (reduced damage, imunity to poison, jump higher, run faster, increased HP, increased mana).
Each players could then mix the ability they want and fit their own unique playstyle. The key idea here is to increase the total amount of options each players have. Because slashing the sword in front of each other is not really interesting...
The economy...
Those items should be in their own inventory and limited to what you can wear and only a few spare item players should lose 1 random of those item when they die. So they dont lose all the character they were trying to build but at the same time give up something to the winning player.
Instead of the normal crafting system, most of those item should be bought at a special blacksmith in the villages. This way there could be a lot more items and the price could be set much more precisely. And players wouldnt have to learn 3 tons of recipes. Each village would have their own level and the blacksmith of a level would simply refuse to buy or sell item of higher level. This would cause higher level players to gather and fight against each other and somewhat leave the lower players alone in other village.
The buildings...
I would make the blocks age when they are placed and slowly become much more resistant to normal tools after a while. This would allow players to build defenses in a safe zone which would actualy resist to any idiot with a stone pickaxe but at the same time would prevent people to build a brand new walls out of nowhere in the middle of a fight.
I'd reduce the resistance difference between basic material (stone, wood) and obsidian. Those material should still be a decent option I don't want every structure in the game to be obsidian.
I'd make block more resistance if they are surrounded by blocks of another type. This would encourage people to create interesting design. Like windows, wooden struts, patterns, fences and such. Instead of going for a plain cobblestone wall just to race their build. The regions would be much more visualy appealing this way.