Do armor sets have maximum armor caps

I just tested this out on my character and can safely say that no, the shield being Heavy Armor will not remove the bonuses received from Custom Fit, Wind Walker, or Matching Set. Those bonuses are applied as long as you have Light Armor equipped to your Head, Chest, Hands, and Feet. So, boots, gloves, helm, and armor. The shield has nothing to do with those perks, so you're good!

The infinite loop can indeed make the Nightengale Bow the strongest bow in the game. Any bow is capped for damage at a number that's essentially some huge power of two, minus one. Attempting to exceed this number, or have the game display such a number, causes a crash. If people aren't crashing the game they're not using the same loop you've read about.

The infinite loop requires four things: ingredients for restoration potions (cyrodilic spadetails, abecean longfins, salt piles), ingredients for enchanting potions, soul gems, and knowledge of the "fortify alchemy" enchantment. Fortify Smithing would also be useful for you.

For best results, have four (or as many as you can manage) +alchemy skill items as the only items on your favorites bar. Equip them. Make a fortify restoration potion. Drink the potion. Unequip the items using the favorites thing. Re-equip. Make a new restoration potion. Drink it. Repeat. Before long your potions will be 10000% plus. That's when you make the fortify enchanting potions. Use one of them to make a +smithing skill ring. Use the other to make a very high % alchemy skill ring, so you don't have to loop in the future.

If you have trouble with this loop three things help: get alchemy skill perks. You shouldn't need more than two or three. Get enchanting perks. You'll definitely want the +25% skill perk. Go fast. Remember that restoration potions multiply each other a little bit. If your alchemy skill is extremely low for your level some potion sellers might be selling higher skill fortify restoration potions than you can actually make yourself. Go buy one, if you can find it.

Because every weapon has the same theoretical maximum damage (which will display as negative because of how integers work in games, thanks to the convention of the leftmost digit in binary corresponding to positive or negative), it doesn't really matter what weapon you use. If you're using this glitch. Besides, you'll one shot anything in the game once you get your bow over 10000 damage or so, so a simple +50000% smithing enchantment ought to suffice for your weapons.

If you plan on using this loop with the double-enchanting perk to get awesome enchantments on every slot I can't stress enough how important it is to plan them out ahead of time so you don't waste a slot.