How much does gear matter?

Since I play a big variety of fantasy games (boardgames, MMOs, tabletop RPG, single player computer, etc.) I get to see a huge variety of different takes on the question "How much should gear matter?"  Generally I am not talking about whether gear should matter at all, because I think logically and thematically it should, but rather whether or not gear becomes more important than the character wearing it.

There are extremes, like comparing a level 43 WOW character to a level 85 WOW character, where the level 43 has 2,000 HP and the level 85 has 80,000 HP.  Regardless of gear the level 43 will die to the first attack the level 85 uses and the level 85 is nigh invulnerable.  There are other games like Diablo 2, for example, where a level 40 with amazing gear could play comfortably but a level 80 with nonmagical gear simply couldn't play at all.

The precise comparison we decided to look at a few years ago was a 3rd edition DnD fighter at level 10 with appropriate magic gear for his level vs. a level 20 fighter with only gear you could buy at the store.  (The store doesn't sell magic items.)  We figured that a level 10 could beat up ogres all day and was comfortable facing a small dragon or a bunch of giants but a level 20 was a legendary hero who fought back waves of demon princes and terrifying great wyrm dragons - surely the level 20 should win.  But 20 loses to 10 quite convincingly.  It turns out that the layers and layers of magical protection that 10 gets to put on are simply too powerful.  10 gets too much AC, HP and stats for 20 to be able to compete.  In short, fighters get better because they find better gear and not so much because they level up.  Note this never held true for casters since a 20 caster can explode a 10 caster with ease, no gear required.

I tried this again with 4rd edition DnD by building up a Slayer called Ten and a Slayer called Twenty (guess what level they were!) to see how the battle shakes out.  Ten gets normal magic gear for his level and Twenty gets just regular equipment you could buy at the store. Twenty hits for 79 with his first attack, 63 on his second and third attack and 50 thereafter.  He hits on a 2 or better on a d20.  Twenty also goes first 90% of the time.  Ten has 85 HP, so Ten dies without getting an action a fair bit of the time and nearly always is dead on the second round.  Ten, on the other hand, has to work through 155 HP and is hitting on 14 or more on a d20.  He gets a few big hits in to start but then has to rely on 28 damage a swing to finish things off - it ends up taking him 17 rounds in total to kill Twenty.  In short Twenty kills Ten without taking a single point of damage in the great majority of cases and simply cannot lose.

I think this is a much better balance of power.  I like the idea of magic equipment mattering, and it is clear that magic items, weapons in particular, make a significant difference.  That said, if Kord the Magnificent who defeated the Lich King, the Demon Horde and the Titans of Corruption somehow loses his gear and has to use a totally regular sword you could buy at the store he is still going to massacre Kord the Pretty Good who killed a bunch of kobolds and ogres and has a pretty awesome magic sword.  It feels like a DM could actually have the players get captured and lose their gear and still have the adventure make sense, whereas in 3rd edition DnD you couldn't beat anything at all without your gear. The major innovations are the following:

1.  Casters get gear that substantially affects their output.  Everybody needs gear relatively equally so brawler types aren't so castrated by losing their gear compared to casters.  That is, unless the wizard loses his spell book and actually can do *nothing*... which is also removed.

2.  Defenses scale with a single piece of gear.  No more Shield + 5, Armour + 5, Ring + 5, Amulet + 5 where you get 20 AC just from the magic pluses on your equipment.  Now your AC scales from a single piece of equipment so the total bonus you can miss out on is much smaller.

3.  No more stat increasing gear.  Having your magic weapon vanish is bad enough but when your stats also drop by 6 due to losing your belt of Massive Stat Gain the level of punishment is too high.  Inherent stat increases instead of stacking on even more magic items is a good idea.

In the end what I really want is a character that matters.  I don't want to just be a vehicle for my gear to defeat bosses but rather I want gear to augment my abilities and make things easier and less dangerous.  We don't write the story of The Awesome Suit of Armour and its bearer Kord, so lets have the mechanics reflect that.