Not a huge fan of how the mechanic was presented, specially this part: "Specifically, every attack with a weapon degrades that weapon by one unit, and armor and shields are similarly degraded when the wearer is attacked." I think armor/shield degradation should be based on what kind of attack you've receive, not just on being attacked.
However, item degradation can presente interesting tactical options like spells that degrade or break equipment, fire and acid causing damage to the wearer and to the equipment over time, etc...