Yop yop,
(Sorry for my bad english, I probably didn’t spot every mistakes)
I’m currently working on the game economy, especially on limiting hyperinflation.
My game needs money sinks, and one of them will be item decay (sorry Ninja =).
Item decay makes sense imho : look at the real world. Nothing is eternal (besides Bond’s diamonds 
I was wondering how far I could go into decaying equipment… Thus the question is open on purpose. It grants you the opportunity to voice your concerns and give ideas which is always a good thing 
Of course, the system I planned contains a repair mechanic (hoping it makes you feel better Ninja ?), as it is a good money sink (there are better sinks, but this topic is about item decay, I won’t derail the thread).
It does not contain hp and all, like** TheKingOfTheRoad** described, but the “breaking” is odds based (say 1/1 000, needs tweaking. I think odds based events aren’t bad in themselves) upon strike and quality tiered.
This avoids item instantiation, maintenance and numerous requests to the database at the cost of creating more scriptable objets (adding to them the breaking odds value and 2 links (to lower and higher tier items)) and item swapping once in a while. I believe that’s a good tradeoff.
The item created version is “brand new” tier 5. Player uses it to her content, once it fails the roll, player gets her warning, the item is swapped to the tier 4 version, the “still new”, etc… Note that only the tier 1 version looses stats.
Statistically (if my calculations are correct), loosing 2 tiers in a short span is very unlikely.
The layers exist to mitigate “bad luck” as well as the money sink excuse.
Repairing raises the quality by 1 tier for relatively small amount, by 2 tiers for a higher amount, you get the idea.
Item’s destruction also helps economy… I envision it as a partial destruction, more like an automatic salvage of the item so you retain most of the resources you’ve spent into the fabrication. You just need to find the rest, and pay for the reconstruction.
But this would only happen if you do not take care of your stuff.
Ok, you know (almost) everything, let the discussion begin ^^