Regarding the body armor proposal...
Even if it would have minimal use for bullet protection in-game (only long range mp-40 and pistols), the steel plates would still protect against bayonets to the torso.
That alone would make it a very decent pick for fighting in close quarters.
The trade-off obviously would be to slow down your character.
------
Another thing is: I've seen pictures of entrenching tools floating around. I was wondering if the IOM team intends for them to serve a role or just be there for flavor. A possible way to balance knives and entrenching tools is to make their melee animation slightly faster than a bayonet, but have less reach. Some examples:
If I'm right next to another person with a knife and he with a bayonet and we both click at the same time to stab, my knife would stab first.
If we are at a distance, he can stab me first before I can get into range to stab him. If I sidestep his bayonet though, he is in trouble.