Havent' read this entire thread; but i kind of like damage to item reducing effectivenss and not having the ability of repairing things to 100%. This means that things will wear out over time. For example if you could only repair things to 95% then after 10 repairs it would be down to 65%; if effectiveness was 1.4 of % then the effectiveness of 10ac would be down to approx 7.8. Type of armor could impact max repairbility. Of course if items wear out too fast this can be quite annoying et all. However, with this system any item worn too many encounter will eventually break which means you will be forced to change items over the course of the game. - I don't know how well D:OS-2 items will progress but i know in d:os-1 it was not uncommon for me to find the 'best' item for my character early (amazing number of mid-level items were used until level 18 or 19). Anyway just a thought.
So, most of the items you were using at level 18-19 were found in the mid-game (level 9-12)? If I am not mistaken, loot in D:OS 1 is scaled based on the level of the chest/enemy which drops it and maybe partly on your level. Also, most of the loot in D:OS 1 is RNG-based, found in loot or bought off of vendors. So what that suggests is that you didn't have all that many good loot drops for the last third of the game.
To me, that makes your suggestion of loot degrading into uselessness extra-bizarre.
This is not Diablo or an MMO. The game does not contain respawning enemies and infinite loot, and probably not even a huge amount of unique items compared to a Diablo game. You can't trade good items between characters - you have to take what you get.
It's already annoying to go for ages without finding good weapons - my archer and mage were using their basic level 1 crude weapons for a very long time because nothing good dropped and I couldn't afford much of anything for sale. Adding on degradation so that eventually your gear breaks down just seems like it would be a further punishment for the RNG not giving you anything good to replace it.
