It's best on to get elite/non-elite confused with morale here.

Non-elite units suffer a permanent -2 morale penalty after the general's death. The other (main) aspect of elite/non-elite behaviour are well known, i.e. elite units ignore the non elite routers. So elite/non-elite status mainly affects chain-rout scenarios. This hits AI controlled factions hardest as when the general dies a large army made up of mainly non-elites can disintegrate very quickly. Personally I think reducing the number of non elites would be a good thing. For example, if FMAA are considered elite, then so should Saracen Infantry and Byzantine Infantry, etc. All units except the "peasant class" units, miltias, archers and crossbows should be elite, morale can determine the rest. In the vanilla game, the artificial morale and valour upgrades are necessary due to the low morale stats and non elite status. Removing the armour and weapon upgrades altogether and putting a cap on morale upgrades (~ +2) would make the case stronger for increasing the number of elite units. This would only work of course if combined with a reduction of the overall unit roster.

You can also look at this from the reverse perspective. For example if Saracen Infantry are elite - and rout, then other elite units will take notice of them - as they should (i.e. the defensive "spear wall" and mainstay of the army turned just ran for it...). This is better than a unit of peasants routing and quote possibly taking AHC and Saracen Infantry with them.