I think the idea is great although it would have a hard time been balanced. Thoose who play orcs will have lots of troops to defer to burning the corpses etc and stopping the spread of disease. So will remain alrgly unaffected by the system. Been dirty creatures themselves used to plunder and death i guess they wouldent have that large a moral affect either.
On the other extreme though a sieged town of elves. Who find the voilence and stench demoralising would be demoraled at a higher rate . This combined with the elite unit ethos where a much lower pop cap is in play as units are more effective killing machines and not fodder means. That they would hve to take a larger portion of there defence to deal with this as a result of the numbers needed. This leads naturally to a great imbalance if disease was put into use. As if elves did not bring the manpower away quickly from the front lines they would all die of desease anyway.
This would only really work if everyone had the same pop cap and balances. E.g. Human where they have sufficent man power to hold a defence and defer units to work aswell as having some moral affect agaisnt them etc.
This is just my analysis anyway of what would happen in the fighting system at current from what i understand from it. One option would be to add a remove disease ability to the elves where they naturally cure alot faster then other races so they shall not be as effected by it. The orcs will balance themselves with the fodder taking on the task and the humans can have a corpse cart or somthing as a unit which could be an attachment and make them more efficent in the colecting/disposing of desease. So that the balnace remains greater in tune with one another and no desease is to overpowered when used. Also the elves could have a nature spell which claims the body's to earth before they have a chance to spread desease in a given area.
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