I a agree with this somewhat. The restrictions can be a bit daunting in certain situations especially with the economy in hell atm. I find a mix would probably better. Awesome or quested gear should be restricted.
Thinking of it this way you can wear your dad's shirt or a suit of armor but you would look foolish and it would be cumbersome in battle. Penalties on the gear might be better for alot of the lower level stuff as well. I can see the higher stuff being restricted...