Hy,
First of all, i have played the first Xenonauts with and without mods a lot and i remember using the Predator Assault Armor (Colossus Armor in Xenonauts 2) only after discovering that LMG were buffed - less TU, less recoil.
Without that, you lose the ability to throw grenades and you gain very little armor.
Even after the 70 armor upgrade the Colossus is not that good.
So, you really need to:
1 - Make the LMG more effective when used by the Colossus - likely via reducing the TU cost to fire it, so it can be used more like an assault rifle (As you said)
A powerful melee weapon -sure - but the LMG should be better
A super-heavy combat shield - sure it could be interesting
A rocket launcher - YES - I remember this was present in the first xenonauts- maybe it was a mod but it was great
Also the grenade launcher should be compatible with Colossus