So there is a concern that if unique items were not destroyed, new items would not be introduced and the repertoire of items would at the end become stale, and adventurers would not be able to bring in new items.
All of the above can be solved while still holding on to somewhat permanent items.
You could remove item decay entirely but instead increase chances of them being lost in battles, especially if you are wounded (and you could introduce other ways you could lose them). As the item is lost, a "quest" of sorts is created. The quests would be mostly done by the adventurers. They could have elements such as searching areas, finding certain components, gathering rumors about the artifact, traveling to distant places etc.
Let's assume an island would have around 100 items in use on the average. If there were 0 items in use, the quests would be very easy, and the items would generally be also randomly found very easily. But with 100 items the quests would get progressively more difficult. New items could be introduced still by the adventurers, but once lost, they would also be very difficult (or at least time consuming) to find again. This would mean that very important items with plentiful of lore would be sought sparing not coin nor effort, but the less important ones would not be worth the trouble, and would eventually be forgotten entirely and then after some time deleted. But as long as the game would detect signs of someone still tracking the item, it would be "alive".
So then the items that people generally did not care about very much would be lost and eventually deleted, but those that truly are very important would not vanish, but would instead have more history about them.
In addition to this you could add another tier of items where you would need two or three unique items as components. Losing one of these could always generate a very labour intensive quest. This way the items would increase the need of cooperation between players, and there would be more reasons to go to war, as pretty much anyone could go after the lost item.
"You hear some rumors about the Precious Sword of Frogslaying that was lost by Sir Kepler in a battle fought in Keplerstan. The rumor has it that the sailors at the Port Evilstan might know something more about the item."
"Yes, the Precious Sword of Frogslaying! I have heard of it. Bring me a piece of quartz and a small ruby and we will talk more."
"I am afraid the item was last seen and lost in the region of Impassable Mountains. You should search there."
"Upon searching the region you come across a large group of very vicious looking monsters. You see that their leader carries the Precious Sword of Frogslaying. It would be very difficult to engage the group on your own. Do you want to try or look for assistance?"
And so on...
