I would say that a 3 value system would be best.
1. A Quality number that indicates how well made the gear is and has an effect on how fast it wears out. This can be a percentage like is used in DAoC and has a dirrect effect on the damage of weapons and the protection provided by armor. 75% quality weapons wear out much quicker than 99% quality weapons.
2. A Condition value that tells the current condition of the gear and this number can be brough back to full with the help of a PC (no NPCs) crafter. As this number drops it too will affect the effectiveness of weapons and armor. This also is very simular to DAoC.
3. A Durability value that slowy drops over time based on use and is affected by the quality and how low you allow the Condidition to go. This value will just determine the over all life of the item. The better the enchantment and material the gear is made from, the longer it should last, so that a Paladin does not have replace his +5 Holy Avenger every time he turns around.
I referenced DAoC twice because I think they have a good system when it come to gear. Now they have put gear in the game that will never wear out and I am unsure if that is a good idea. If NPC crafter can be used to repair gear I think it should be made expensive enough that a PC woudl be a better alternative if one is available.