I find it too much hassle to run all the way from ie. Scaradon(btw. I absolutely love the place) caves to nearest smith in middle of grinding level or 10.
Its enough that I have to run to get more bonemeal potions since I am too poor to buy 1000 of em in one time

But if you want to implement damaged weapon/armour, I recommend making it so that random drops from monsters (excluding 100% drop items from bosses and so.) drop as prefix "damaged".
Meaning they are useful(ie. prefix gives 50% penalty to all positive effects?) only when you repair them at nearest smith and after that they do not require fixing.
Also the prefix could be rusty, dented, broken, torn depending on the item. Ie leather armours could be torn, weapons dented, metallic armors damaged or rusty.