Yeah, I'm not a big fan of "fail forward". I'm quite happy just to have the PCs fail.
Ok, so long as we are speaking the same language.
The thing is, I don't mind the player characters being inconvenienced in any and all ways. Not an issue...It doesn't inconvenience the PCs, it inconveniences the players and it inconveniences me. And that's something I'd rather avoid.
In general, I tend to handwave shopping if the number of players is above 2 (which it has been for me for that last 15 years or so). It's not so much that it is inconvenience or distracts from what is important, but that it tends to be a pursuit that doesn't lead to group dynamics or interesting group play. When you have a larger group, you need to make sure that you are focusing the spotlight on the group most of the time, rather than on small stage melodrama involving just a portion of the group.
So, actually, what I'm calling for, in the case where the DM decides "equipment matters" is that the inconvenience be greater than just the occasional trip back to town. They can't carry iron spikes and rope and rations and torches, so they have to make a tough choice about what to leave behind and then have to make do without if caught short.
When equipment matters, it's not the iron spikes, rope, rations, and torches, but the player's bag of holding or +3 composite longbow that the kobold is running away down the corridor with. I mean, it could be a funny scene when the players realize that the kobold is running away with the torches and lamp oil, and they have only 30 minutes of light left and they're hours from the surface, but that would be a rather rare situation indeed. The real issue here though is that for the average player, they have a far stronger and more sentimental relationship with their gear than they do with any NPCs - no matter how strong the DMs characterization has been. Player's tend to think of their gear the way Jayne Cobb thinks of his guns. If you really want to provoke strong emotional reactions from the PC's, don't kidnap the PC's little sister or lover - kidnap their gear. "The BBEG is holding my nephew hostage.", is an intellectual position. "That thing took my stuff!", is an emotional position.
I can't help but thinking that part of the resistance to bookkeeping is not merely the resistance to the drudgery of keeping track of your current encumbrance, but rather resistance to anything that might mess with the player's attachment to his gear. "We leave no man behind!", in D&D tends to be replaced with, "We leave no coin behind!"
Some people - probably a lot of people - simply don't care about this, and don't consider that the TARDIS-style backpack does "violate the integrity of the imagined space". They just want to play. And I can't say I fault them for that - people should play what they want.
I think I may have not communicated clearly. I don't really have a problem with bags of holding. I'm not even suggesting that they are wrong for my game. What I'm suggesting is a personal preference regarding how and when they are introduced to the game. The question could be thought of as, "At what tier do you introduce or associate bags of holding?" And for me, the answer is, "Epic tier.", or at least "end game", because I associate the "epic tier" not with a level range but with end states of the campaign. For me, with campaigns that ideally end around 13th to 15th level, that means bags of holding might show up around 10th level or higher.
This is for me because the tier system is less associated with level or color, than how the sort of challenges you have to struggle to overcome shape the way you play. And for me, D&D's rather effective zero to hero to demigod structure strongly encourages you to sample each set of challenges in a certain order. That is to say, I prefer not to introduce perfect solutions to logistic problems until players have played through a period of struggling with logistic problems. Thus, there ought to be a period where going on a long journey represents many hazards and difficulties. Only after this period is experienced and struggled through should the tools that render such a journey trivial or unnecessary be introduced. If you introduce bags of holding in the mundane tier, so that they pick up one in the dungeon at 1st level, you may be unintentionally changing the color of play significantly.
My advice is to change this color of play only by conscious choice and only if you know what trade off you are making. The reason I love Keeblrkid's post is I think he's pleasantly shocked to discover exactly what he was losing by avoiding something he thought was mere bookkeeping. In fact, I'd argue by ignoring encumbrance and similar logistics problems, you've lost almost everything that makes what you might call the 'paragon' tier interesting, namely, being and growing into being a "leader of men". Paragon play IMO is marked by expansion of the play into spheres of social and political importance, and with in the acceptance of responsibility for other persons by the PCs/players. (Ironically, this is because in a sense you are making NPCs into possessions or gear of the player.) By making the party a self-sufficient island unto itself, capable of transporting all its stuff, you are unintentionally endorsing sociopathic behavior because you are creating a situation where the party really doesn't need anyone and perhaps optimal play might well be to see it as "us against the world".
But there seems to be a weird hang-up that occurs with games like this where, because the game includes rules for encumbrance they feel that they have to include it. And so we have people tracking encumbrance, and then bitching mightily about the need to do so. Leading to the rules getting watered down further and further, to the current point of uselessness.
I understand your frustration. I've got 500 pages of house rules, and counting. Ok, I understand you don't want to formalize things that much, and maybe you aren't a really good rules smith, but seriously, how does any DM get hidebound? The DM makes the freakin' rules.