Stop right there. Why?
I know, you don't want to lose your precious raid gear, but reasonably, why? If we go back a very successful model (again, EVE), then there are PVE drops, they're generally a bit better than their crafted equivalents... and they blow up and are looted exactly the same as crafted modules. And guess what? People tend not to use too many of them in PVP, not because there's a rule against that, but due to that exact reason. Because they're likely to lose them if things go south.
Because this game would not be EvE?
The drops would require a lot of work in terms of cooperation and time investment, and would still be rare and random. In addition, you'd only be allowed a certain amount of them AND they would be fully tradeable after use. This is all meant to build notoriety for dungeons and raiding, in order to draw cooperative groups into that paradigm.
Anyway, I can't tell you the amount of times I've heard "you can do PvE in even, but it sucks."---EvE is not a good example of building a working PVE raid system into a game.
If you have a game like EVE where the economy is a great driving force for the game dynamics, generating demand for materials, hence territorial control for those materials, then having half of your equipment indestructible and unlootable means that you've just cut the economy in half, and weakened suddenly the driver for conflict that makes your game dynamic. And if you don't use the economy as a driver for your game, then you don't need a strong one, so why have half of your equipment crafted and lootable? Why not none of it?
Because if done right you can achieve both. If half your gear comes from rare materials and map control, and half comes from PvE BUT some of that PvE is ALSO dependent on server control (And not faction based server control, but instead a more guild/alliance based system--which would be complex, but like I said, it was a short summary)--then you obtain all elements of social conflict.
For example, lets say your game has a rich PvE raid environment (Pure one)...And lets also say on one particular day, sets of mines that spawn rich ore (For high crafting Materials) spawn in XY mountains. AND a raid dungeon entrance also spawns there. If you can manage to control this territory, you can farm it for X days after winning it. Do you really believe you've cut down on the stakes behind controlling that territory?Or do you think you've just invited a bunch of more PvE focused players to enjoin in an guild alliance with PvP players to take the territory? (Lets say there is an alliance mechanic that gives clear victory the ability to set friendly all players in the alliance.)
Also, as for "cutting in the half the drive"...Human beings don't just stop gathering goods because they've supplied half their overall goals. We don't function like that. Especially if our goals are evolving through an ever changing need of variables (As said about the horizontal leveling system making different sets of PvE gear desired.)...If the core of our game is conflict, most people will always set out to gain every advantage possible. Especially if that advantage translates to "ritual victories" (Again referring to Durkhiem). If you design it right, they are going to be just as driven for 5 pieces as 10. BUT that doesn't even matter--because getting all ten pieces should be intertwined anyway (You'll need both conflict and cooperation to gain a good suit. )
The idea of "half of your equipment comes from PVE and obeys different rules" means essentially that you've just weakened both sides: your pvp is weaker (less incentives), and your pve is weaker (why try to loot more pve stuff, since I can't use it anyway).
No, what you've done is combine both to make them both essential. How did anything I say make PvP weaker? If anything, it increased the incentives AND does the most important thing of all--gets more bodies into PvP because it's needed to access the full breadth of the game.
As for not looting more PvE stuff. AGAIN, every system is designed for this. Which means, first off, that you won't be looting too much PvE gear at all. On the whole,
PvE gear will be extremely rare--and come from high social input sources. A pure PvE player might have access to his full alotment, but if it's done right he won't have a "perfect" gear set for his build before the end of an expansion (Even if he focuses all on PvE).
ALSO, it will be full tradeable, which means you can sell it, or even twink with it (Absolutely no restrictions)...So given the rare nature of these drops (Rarity vs variable need), they should, if your market is big enough (Which it will be since we're designing the game for a large subset), be valuable even if your overall gear is completed (Because you can sell it for money that might give you access to a better crafted piece, which might re-open your base gear to give access to another PvE piece). So even if I wasn't a PvE-er, so the god sword isn't as good for me as my current load out, the god-sword would still be valuable to me because of how open the economy is and the high demand for it (Due to all the reasons listed so far in terms of variables.)
Like I said, everything must be designed from the ground up with this in mind. Every system is interdependent. Nothing is weakened, rather it's all made to rely on each other more. Gear being rare, plus player needs changing as their skills are augmented creating demand for different statistics from gear, in addition to social constraints requiring high time (But not commitment per session) to farm pieces--will create an environment where a lot of PvE gear is wanted, but not a lot can be gained. In order to gain more, you breed conflict, which forces more need for crafted gear. Everything working together to force players into using each other for control.