Interesting idea. when i saw the title I thought you were organising a naked tournament or something.
I'm not sure I can see gaining items this way getting through. The transfer value of some items with refines equates to potentially 1000's of diamonds, and some you can only buy with hard currency.
I really like the idea of item wear though.
If equipment was given a "Durability" statistic it could depreciate the effectiveness of the Skill boosts that item provides by the percentage of durability remaining.
An item with very low or no durability could (percentage chance) "break" if it takes further damage after a fight, causing the broken item to go to the inventory (or to mailbox if inventory is full)
Mysty's could offer an item repair service that costs notes if the item is not broken, and diamonds if the item is broken.
The durability on equipment could be a very minimal amount based on damage taken each hit, irrespective of fight result.
By working out which piece took damage in a strike, theres potential to improve the aesthetic mechanics of fights to be more descriptive and interesting to watch.
eg. Player 1 kicks Player 2 in the leg, Player 2 hops around a bit and returns a punch to the head Player 2 rubs head and throws a missile into the chest of Player 1.