While I agree with the old-school attitude expressed by the OP, I think this thread brings up larger issues that have to do with the social contract of the gaming group and what the players (including the DM) want and expect from the game.
A couple of years ago, after our group realized that 4E wasn't for us, I ran Keep on the Borderlands using the original Red Box rules. The results were enlightening. For one thing, the players were quite literally at the edges of their seats the entire time. Why? Because it was fantasy ****ing Vietnam, and their characters could die at any moment. One stray goblin arrow was enough to end a 1st level character's life, and that was with max HP at first level. This is the kind of game where rust monsters are appropriate: it's the "step on up" attitude of Gamism at it's best! If I throw a rust monster at you, deal with it! If you lose your sword, it's your fault, or bad dice, but don't be a cry-baby about it.
On the other hand, our group experienced some problems with that style of play. No matter how explicit you make the social contract--like "Okay guys, this is old-school D&D, it is hard and your character will probably die so don't get too attached"--no one wants their character to die, or lose his father's sword, for some trivial reason that has no importance within the story. My friend Jacob was playing an awesome dwarf, truly a great character, and he was knifed to death by a bunch of female hobgoblins. Despite being a mature player, he was upset. He wasn't upset that his character had died, he was upset that his character died in a way that wasn't even a cool or meaningful part of the story.
As humans, I think we all want our characters to at least die in a meaningful way, no matter how hard we try to embrace a hardcore, old-school Gamist agenda. It is only natural to get upset when your father's sword is eaten by a rust monster. But if you lose that sword after plunging it into the fiery heart of the demon that ate your father, well... that's a different story. So the way I see it, this is about when the nature of the game comes into conflict with the players' entirely natural desire to have some meaningful influence in the co-creation of story, and it's part of the reason that players and DMs have drifted D&D from its original form in the first place. It's also a big part of the reason why, as much as I love Red Box, I choose to run different systems when I want to co-create good fantasy stories.