It's not an error, they're simply not considered important enough anymore to be given altered appearances. In the old day, rune level DID affect the appearance of at least shields, with higher rankings giving a more impressive look, but it was not a dramatic change like what weapons got. I think they only did that for GT and maybe DC, before deciding it wasn't worth the time. Lutes and cannons have never been affected by rune level because they're not considered to be your "weapon." They are what you use to attack with, technically, but the rune level only works on your actual equipped weapon. Holy weapons do affect lutes and cannons, though, as well as of course shields and off-hands.
As for your question regarding runes, certain equipment pieces were granted the ability to have runes placed in them, with the rune counting as offensive or defensive based on which item you placed the rune in. I believe the specific bits of gear were your melee weapon, ranged weapon, helmet, chestpiece, pants, and shirt. Someone else can correct me if they remember more accurately which parts were given rune slots. It was a huge pain with melee weapons after Gipat, though, because switching between tank and 2H setups meant you had to remove your rune from one weapon to put it into another. Using the basic rune pick had a good chance of destroying the rune outright, so you had to use CS ones with varying levels of success at removal. Then at one point you didn't even get rune slots by default, you had to use engraving kits to put a rune slot into the gear piece that had the capability of accepting one.
A lot of people profited HUGELY from engraving kits, though, in that they knew there was going to be an exchange program for them. So they bought out tons of kits for MUCH less than the cost of crystal chips, then exchanged them for disgusting amounts of chips when that patch came. Gpotato should have removed them from the store entirely when the patch notes on RU were announced, but instead not only kept them in, but put a dramatic sale on them as well. A fair number of the people you see running around with sickening rune levels got a big boost from that particular debacle. And yes, I am salty that I wasn't smart enough to do the same.