Hit location is an absolute must....kind of...
My 1d6-6 Arrow has very little chance of getting pased your pd 4 armor (studded leather if i remember right).... so my ability to aim at areas your armor isn't is a must....
Now, as for Hand-to-Hand... leave it up to the player....
When they attack, they can go with no Hit roll and loose stun mods, etc....or they can go for the stun mods, body mods, etc...and hope to god they didn't hit an arm and 1/2 everything....another option on this is limiting H-T-H to 2 hit loacation rolls...either Upper body or Lower Body depending on the attack....
The only down side I see is that it does require one to track armor very well...have to know what is covering where and with what level of PD....
I dont see it as a combat slower at all...in fact, I generally see it as a speeding up mechanism..... those vital area hits tend to make people just stop everything they had ever planned on doing..