jacobvandy: Finally got my steel sword down to 0% (funny how it took me so long, when I was TRYING to do it :P), and here are the results:
76-100% durability = No damage penalty
51-75% durability = damage penalty of 2.5% (Easy), 5% (Normal), 7.5% (Hard), 10% (Very Hard)
0-50% durability = damage penalty of 5% (Easy, 10% (Normal), 15% (Hard), 20% (Very Hard)
That's right! Nothing special happens when it gets down to "completely broken" or 0% durability, which surprised me. But turns out I was correct in my previous estimate of it being only a 10% reduction on Normal.
In the time it took me to test this at level 12-13, I looted more than 1,000g worth of stuff, including half a dozen repair kits. YMMV, of course, but this is why I don't feel durability is that bad at all.
thx jv thats really helpful, now as you say it only remains to conquer the psychological aspect. but at least i dont have to worry about maintaining it like i was; wish this had been modeled much differently so it was more obvious it was nbd.