There is this little piece of mechanics that should make flame weapons more realistic IF someone implemented it...
1. There is chance to be set on fire, yes, but it must be based on the % fire resistance of the armor. Highly resistant armor (say, *0.33 modifier or better) protects from this effect. Possibly the actual armor points value should be ignored altogether when dealing damage. On the positive side, no Fatal Wounds are ever dealt by fire.
2. You take random damage each turn (0-16?), circumventing armor but still affected by the % resistance;
3. If the damage was below a certain threshold (4?), the fire goes out (hence resistant armors burn for a shorter time on average);
4. - Crucial - as long as you're on fire, you automatically PANIC unless your Bravery is 110 or more. I can't really picture someone who is able to fight despite being on fire.
5. - Optional - each turn, your equipment has a % chance of being burnt, again based on your armor's resistance. If it's a grenade or HE ammo, it goes off. As you drop items held in your hands anyway, since you panic, at least your main weapon is safe...
6. On the turn the fire goes off, Morale is 0 but this loss counts as being caused by injury (might be difficult to track).
7. The basic % chance to catch fire and burn equipment can be based on the general strength of the weapon.