Actually, you're right. Try this exchange.
DM: You spy a small insectoid creature with feathery antenea and a strange paddle-like tail.
Player #1: I swat it with my sword
DM: Roll a REF save
Player #1: *rolls 1*, Darn I blew it, what happens?
DM: Your sword immediately turns to rust in your hands, the monster waves its antenea and *rolls* your armor is also rusting away
Player #1: But, that was my favorite weapon and armor!
DM: Suck it up meat-bag!
Player #1: Piss off jerk! I'll go play with someone else! *gets up and leaves table*
This could be fixed by changing this as follows...
DM: You spy a small insectoid creature with feathery antenea and a strange paddle-like tail.
Player #1: I swat it with my sword
DM: Roll a REF save
Player #1: *rolls 1*, Darn I blew it, what happens?
DM: Your sword becomes pitted with rust. You suspect that another couple hits, and your sword will be damaged beyond repair.
DM: The monster also bites you *rolls* and hits for 6 points of damage. You notice your armor starts to corrode just like your sword.
Player #1: What the $%#^! So it's like a metal-rust monster? Ah crap! I pull back before it gets my armor again, and sheathe my favorite sword...
DM: The monster skitters toward you, waving its antennae.
Player #1: Damn it's fast! Since I can't run, I pull my mace and use that. *rolls* I hit!
DM: *rolls* Although the creature takes some damage, your mace also becomes pitted with rust. *rolls* The thing's antennae strike your armor. The corrosion spreads.
Player #1: I need to end this before I lose my armor! I take another swing with the mace and Power Attack for all I'm worth.*rolls*
DM: Your blow splits open the creature's carapace. However, your mace starts to disintegrate, crumbling into red dust in your hands. You hear skittering as three more creatures come out through a hole in the opposite corner.
Player #1: I RUN!!!
The player here has lost a weapon and his armor's been degraded. His sword is damaged but repairable. He was given a chance to save his favorite weapon. If he had friends, they could have stepped in to "share the burden." He'll probably run from a rust monster in the future. And he still got to have fun!
To me, that's a WHOLE lot more satsifying. He can CHOOSE to take the hit to his gear and go for the fight. Or not.
That's what should determine the outcome in an encounter. Choice, not chance.
My opinion.