For my 'Terra-War' mod I am tending to do a little of both. Increasing morale a small amount reduces the running away, and increasing the armour does make the battles longer. You need to make the changes in small increments though, You can also try increasing the durability of the units as well.

One thing I want to look at is the impact of the leader. It might work better onthe morale front if the leader gave a bigger boost to morale. That would make killing the general in a batlle have a bigger effect, but increase the 'stand and fight' effect for the rest of hte battle.

It's a tricky one, and really just a question of getting the right balance for ALL the units....