Any open-ended virtual economy that does not provide for the decay and loss of items will always overflow.  This is also related to uncontrolled cash inflation, since a society of millionaires has no incentive to try and sell off their collections of expensive crap if they don’t have to pay taxes on them.  Insufficient item decay equals powerful item inflation equals player power inflation, and you eventually have a situation where most of your content becomes a joke, as your entire playerbase is outfitted in top of the line stuff handed down by hoarding patrons.  Naturally, they’ll still hoard the stuff they don’t even use, taxing your server and your patience.

The sort of item decay people think (and whine) about most is the decay of weapons, armor, and other battle gear.  Realism provides us with yet another good reference.  The day after a battle, a soldier who had survived more or less in one piece was spending most of the next day fixing his stuff.  Battles are hard on equipment.  It only stands to reason that armor and weapons have limited lifespans, and you can only grind down a sword blade (the only way to keep its edge) so many times before you have a piece of wire with a handle.  Weapons with wooden handles are cheap, but they get snapped more frequently than all-metal ones, and the best way to keep your spear functional is to sharpen the head again (if there’s enough metal there) and fit it onto a new shaft.  This, of course, requires a crafting model robust enough to allow for multiple components (get the shaft from a woodworker and a spearhead from the smith).

Shields are a special case.  Shields are always mishandled in fantasy RPG’s, unless you happen to playing GURPS with every little impossible to find variant rule in the book.  Shields were considered disposable items.  A typical shield was made primarily of layered wood, edged with metal to absorb chops to its sides, and maybe reinforced with bands, though this made them cumbersome.  The proper use of a shield was as an angled deflector to shove kinetic energy to the side, or (if you were feeling lucky) you might try to catch an incoming swing on the metal bands to catch or break an enemy’s weapon.  Regardless, you can only punish a shield for so long, and they were generally discarded after one battle.  The all-metal shield model so popular in fantasy imagery would be too damn heavy to lug around on the field, let alone carried on a mountain trek.  A buckler might be made primarily of metal, but bucklers are exceptionally small and require great skill to use effectively, and still aren’t indestructible.

In any case, it is to the advantage of the game world to allow for the destruction and loss of anything.  Items can be assigned hit points and similar ratings, and (if your engine really rocks) variable damage types.  A fireball might recrystalize a piece of steel, but say goodbye to that apron.  Things may be repairable to a degree, but every time you patch something up, you weaken it.  Eventually, you need to outfit yourself again, discarding your ruined gear, and helping the economy along in the process.