Item degredation is good, this is a kind of screwy solution.
I don't think people would mind it so much if it weren't for the way all items have become extremely difficult to make. For example, a composite recurve bow takes 3 or so machines to make, and a broadsword blade takes like 4 metal tools and an anvil to make.
The other thing is peoples' time compression is a little odd. A Cantr year is approximately 1/18 terran years, not 1 terran year. Since work is done as if Cantr years are 20 days, deterioration should be done as if Cantr years are 20 days. A bow is not going to rot away in 200 days unless it's a piece of crud.
That's one problem here. High quality equipment survives longer even if it's made of basically the same thing. Sure, a cheap longbow you just slapped together (after working hard to get the resources, but nonetheless) shouldn't last very long, but if you spend 10 days making it, that should really make a difference. Metal casting, similarly, is fast but yields lower quality results (mainly in terms of durability) than standard forging. Cantr doesn't reflect this and seems to assume construction quality is based solely on what material is used.
People left because of tiredness and the alterations in hunting and fighting. I think that was made clear at the time, although some people simply didn't like the complications made to the game, which, although good changes, can become a headache.
I scaled back because characters take longer to play with modularization, tiredness, and the inability of so many to hunt. My person who's been hunting for 12 years now is thoroughly ineffective against animals, and things like that tend to bother people. Things like that make starting new characters a very big hassle, especially if they start somewhere boring.
Item degredation is good but if we're assuming decay as the only cause of rot, items should actually decay LESS with use because use implies that you're paying some attention to it. Actually I think items in inventories should experience much less decay, as invisible insects and such will probably not be able to attack them. This could also be an incentive for people to open up their stockpiles of materials

"We will change our world forever. You will handle the arrangements."