No. Your reasoning to keep all items is valid, but if your in a fight and your armour and/or sword breaks, your hooped.
Well you see, that's kind of the point...
I for one love this idea, for basically all the reasons Moon listed in the original post. I mean, when you're playing MCSG, and you find a stone sword, you're kind of set for a little bit, and if you already have good armor, there's no point in checking any other chests. With his idea, it gives you something else to do, and adds a factor into PVP.
The only problem I have with the idea though, (and it's not really a big one) would all the chests at the cornucopia function the same way? Cause if so, you could waste a lot of your time running to the corn, to get an iron chestplate and stone sword that barely has anything left in it. The cornucopia is supposed to have the best stuff, and I'd feel royally screwed if I got something with no juice left in it.
Other than that, I really like the idea.