It's an interesting idea but doesn't solve the cheese problem:
I build 20 big ships with really wimpy weapons/defenses and send them out.
I then immediately "upgrade" them to really tough ships.
In the system you guys are talking about, what exactly is the "cost" of doing this?
With our system, the idea is that those ships being upgraded would be useless for X amount of turns while they're being upgraded based on distance and expense.
Even our system is pretty lax. If I build 100 ships that cost 100 to build and then upgrade them all to ships that would cost 500, I am effectively getting a huge advantage because my planets are still producing new ships while my cheap fleets are being produced too.
The problem being: What is producing these upgrades?
The ideal solution IMO would invovle something like this (but it's a micro management nightmare):
A upgrade cargo ship is built on the planet that the ship came from that costs the difference between the original and the new ship. It then flies to the ship and once it intercepts, it is upgraded to the new level.
The problems with this is:
1) It could take a long time to produce enough cargo ships since all your ships could come from a handful of planets.
2) What happens if the originating world has been conquered?
3) Do you force people to produce cargo ships? If not, then how do you switch back and forth without it getting complicated (i.e. space sports, by definition, are supposed to only create ONE ship at a time).
In other words, the player has to incur SOME cost.
Now you might say "Well, let's just have the player pay $$$ to upgrade" but the problem with that is that it rewards the player who has not built up their industry on their planets. Something has to manufacture the ships and upgrades and that is where the problem with upgrades comes into play.
Another idea would be to have the planet manufacture ALL the upgrades it needs as one mega cargo ship which then splits off. So if Earth has produced 50 Galaxy class star ships and you want to upgrade them to the Galaxy II class ship and the difference is 20 resources per ship, then it would cost 1000 to upgrade all 50 ships and then once built, the cargo fleet would split up and head towards each ship.
The problem with THAT, however, the case where some cargo ships get destroyed. You don't want the star port to get hijacked by the computer to build replacement cargo ships for the ones destroyed.
ANOTHER idea, which would take too long to implement and test, woudl be to have a ship building queue and when you upgrade a ship, the cargo ships get inserted into the queue and whenver one is destroyed, more cargo ships get inserted into the queue. But that would require a LOT of coding and testing, mroe than we have and it still might not be "fun" to play that way.
ANYWAY..
Any game mechanic for upgrading ships should take these factors into account:
1) The cost difference between the original ship and the upgraded ship to prevent cheese.
2) The distance from the planet it was constructed on (to prevent cheese with building super fast ships and then upgrading them to mega death ships easily).
3) The MANUFACTURING capacity of either your planet or your civilization to reward players who have built up a manufacturing capacity -- MONEY should NOT come into play unless it's at a massive penalty.