This is how i would work it if i was in charge
Item Decay:
Weapons and armour (or activable items) would definately decay and risk being destroyed.
So you have a sword that when brand new, has a condition and a durability: 'Fine Honed Sword' becomes 'Fine Sharp Sword' becomes 'Fine Dull Sword' and finally 'Fine Blunt Sword' - at this point you could continue to equip it but it would be doing less damage each time it went down. So you go and fix it up and it becomes 'Sharp' again, but its quality goes to 'Average' - and so on until its quality becomes 'Worn' - using it then risks it breaking. If it breaks its only good for melting down into a lessened quality metal bar.
Item Repair:
Items made out of different materials would last longer in the different stages or whatever (repairing should also cost you a fuel and metal cluster, and a certain skill in the relvevant repair class, magic items would need to be worked on by a high skill and using imbued raw materials, and maybe special ingredients - uber items maybe even need items that are no-trade)
Crafting:
Player crafted items would always be of a higher quality than anything you could buy from NPCs. Though it would never happen - the aim would be to make a fully working player economy whereby if the merchant NPCs weren't there, nobody would care - because low level crafters would be honing their skills and outfitting low level characters with items. As they get better, they make better items for better characters, or uber quality low grade items.
I seem to remember in UO you could have a makers mark too, this would be great if you could do a similar thing - and perhaps have the option (with uber money and some very rare no-trade mob drop items) to craft unique named items.
Thoughts?