Meow!
Actually, I don't mind either way, I was making a philosophical point.
Firstly, the difference between a plus two sword and a plus three mace is almost negligible. Sure, I hanker after the shiniest gear like everyone else (well, except perhaps the most hardened "low magic" purists), but the amount of magic equipment my DnD characters accumulate after a typical dungeon crawl I probably wouldn't even notice if a thief stole a few of them.
Secondly, I'd like to see a thief steal a cuirass off the person it is strapped front and back to ..! For it to work, PCs would need to have realistic encumbrance (if only to assist with the run-away and chase scenario), and there would need to be a realistic correlation of item theft. In other words, stealing boots off a player standing IN them would be almost impossible (though it would be different if the victim was asleep), whereas stealing a purse would be very simple. Stealing a magic, glowing sword (especially of Anime-proportions!) would be pretty difficult ... and ESPECIALLY if the item was a particular favourite of the player (so there could be personal modifiers, too, in this example).
Morrowind has (and the Ultimas had, for that matter) a workable penal system. Certainly petty larceny would be a fine, murder would be jailtime (thief trying to bribe / escape from jail would be an interesting, variable instance side-quest).
And don't tell me all those Paladins aren't game to be telling other players how to behave ...