Been reading the thread with much interest. Lots of interesting ideas. I'll try to add a few to the mix.
Templates and sample characters are very useful for newcomers to the game, but completely useless to experienced players. Having them as a free download pdf (much like the current bestiary of mundane animals) might give the editor more room in the book for crunchier content. The same is true for creatures. You need the character/creature design rules in the book, but only with a few examples. Currently there is a total of 16 pages in the core book being used for that purpose. That seems largely a loss of space in the core book. If it is felt that they should be available in print, perhaps a simple stapled black-and-white booklet that is included in a starter boxed set?
A rework of the characteristics, abilities and virtues/flaws would be essential. Characteristics could indeed be removed completely, perhaps to be replaced by generic minor/major virtues/flaws. By all means, merge virtues that have the same mechanical impact, listing the specific in-game effect as a kind of specialty/scope for said virtue. So instead of having Educated, Warrior and Well-Travelled (to name only those from the core books) you could have a minor virtue like Experienced (warrior). Same with the host of virtues that give out a +3 to some specific activity. Also the same with personality flaws. Leave the door open for specific sagas to add more of those to the mix as they feel is relevant.
It would be essential to simplify the mechanics of spellcasting rolls so that the totals are easier to calculate. One possibility might be to adapt the formula so that the amount of time you invest in the spell (either to learn it or to cast it) means you get to add more abilities (or Arts) into the formula. So a fast-cast spontaneous spell (with Fatigue) and a Fatigue-less spontaneous spell might only use a single Art (plus a single relevant virtue). A fatiguing spontaneous spell could allow the addition of a second Art. A formulaic spell cast normally might allow the use of two Arts, an ability and up to two relevant virtues. And so on. That way, quick reactions spells would use simple formulas, while spells being used in less stressful environments (or that can be precalculated) can use a more complex formula. And you remove divisions from the formulas at the same time, making them easier to calculate. I think Arts and abilities should be brought back to the same scale of experience. Get rid of the level/magnitude dichotomy and the 5-level increments.
I like the way that we have both long-term activities (covenants, learning spells, crafting devices) and short-term activities (stories). I find it rewarding, I find it fun. I think it is one of those things that distinguish Ars Magica from other games. It is one of those essential things that must be kept.
We should streamline and simplify the learning rules. Too many sources of xp with different rules and restrictions. Books have become the way to improve one's character quickly. There shouldn't be that much disparity between the various ways one learns. Each way should have its advantages and drawbacks. For example, books could be safe but slow; raw vis could be risky but grant insights. Teaching is fast but requires a competent teacher who is much better that the student. Learning by oneself is slower but can be done in parallel with other work.
But, like the character creation rules, the rules for covenant design are probably too complex and need streamlining. Having build points and boons/hooks, a financial system, a loyalty system, having to build and manage a library, design vis sources, and so on... Well, that quickly becomes a big barrier to entry. There should be a sample covenant provided in the core book, with simple rules to adapt it to suit a specific saga's purpose. That way, new comers can start playing quickly.
Spell guidelines and description are essential, but could be made more compact. On the one hand, having a huge list of spells in the core book is cool. On the other hand, that chapter is about a quarter of the core book. You probably don't need that much variety to start a saga. Many of the guidelines could be generalized even across different Arts. Damage is a good example of this. Having a general damage guideline, with a few variations (e.g. Creo Ignem is 1 magnitude easier, indirect damage is 1 or 2 magnitudes more difficult) would make it easier to grasp. If some guidelines and spells are excluded from the core book for brevity's sake, they should be made available in a single book (à la Wizard's Grimoire).
Combat is essential but could be further simplified. You want combat to be quick and deadly, not have multiple totals to be calculated, multiple rolls be compared, result applied by increments to determine the type of wounds received, which further modify those combat totals (meaning you have to recalculate again).
The Realms, Mythic Europe, Stories and Sagas chapter are useful. But do they belong in the core book? Most players don't need them (except for the basics of the Realms). If the game was marketed as a core book vs starter boxed set, then those chapters could be included in a storyguide's sourcebook.
Anyway, enough rambling from me.