To preface, all of the scenarios presented punish new players harshly. That isn't a deal breaker on it's own, but if there isn't any benefit then that on it's own should probably discourage this mechanic from being added.

Let's start with the worst case scenario, time based degradation. For this one I'll use the more modern lingo and just say that I won't sugarcoat it: Hoarding.

This sort of system would encourage hoarding behavior to rather extreme levels. Potentially completely upending the economy to heavily favor tool making mains if it's only implemented for item qualities. This is because of the fabled 'Too good to use' syndrome in combination of quality changing items being tied to tool making 6 and hard to gather items. So you'll probably only see people using such items when 'they really need to'.

This scenario as a result defeats the whole purpose of trying to make it a money sink. Doing so with enchants and materials too may spread out the economic impact out a bit more, but then it utterly demands trying to seek out other players 24/7 if you want to keep your equipment up to date. Probably not exactly a healthy RP scenario either if people start seeing each other as upgrade dispensers.

The next two scenarios brought up aren't going to be torn up nearly as harshly as they avoid a good chunk of issues, but they still need to be addressed.

Death/ko based degradation is probably the best implementation of the bunch and even sounds nice at first, but we should go over why it probably doesn't get anything done. I'll also be mainly addressing it in a PvE standpoint. It's best I split this into 'party wipe' and 'character knockout', as I'm unsure which was intended.

First of, party wipe item degradation is very low impact, highly avoidable and could be argued to already be superseded by item loss. Secondly, 'character knockout' causing potential item degradation should probably be kept to one per battle, as otherwise you wouldn't want to get knocked out repeatedly in the same fight. It also makes play styles that get knocked out more frequently or easily more expensive.

The individual downsides are fair enough I feel, though the game already has enough issues encouraging playing through higher end content. So the main target that would be able to go for said content either uses builds that simply eliminate any form of risk or they just won't engage as they won't see it as worth the hassle.

A short note PvP Wise, less non-spar fights would probably be done in order to facilitate the 'hoarding' behavior from the time based one, though thankfully to a much lesser extent. Not exactly a ideal result though.

Durability based degradation I have the least to say on, but that's only because it just punishes the following from the top of my head instead of being a proper money sink: Bards, Any Weapon with inherently low durability or uses Ether and Desperado Strikers. It also skips out on potentially degrading armor as weapons are the only thing that use durability. Absolutely minimum impact and only really discourages certain play styles.