I am pretty sure it's always been this way in the game. You can never fully upgrade your gear in the current biome due to the need for workbench/forge upgrades. Meadows level 4 gear will require Black Forest which for level 4 gear will require Swamp which for level 4 gear will require Mountains which for level 4 gear will require Plains.

Plains was the only weird exception to the rule iirc which let you upgrade to level 4 in the same biome.

It's been a long time since I eyed the crafting upgrade system in detail so someone can correct me if I am wrong on that. But if the above holds true then it makes sense why you can't upgrade further in Mistlands and it sounds like Carapace level 2 is 2 points more armor than level 4 Padded.

Doesn't sound too bad but could be buffed. I only looked at two armor for comparison but level 4 Bronze offers 42 armor vs. level 2 Iron with 48.