Yeah, many a time I've lost magic items whilst playing Oberin. :-/
I recall one particularly memorable evening when I was making my way back to Lerilin from Port Ghast and ran into a Bone Mage. A
Bone Mage in the middle of the forest?! Naturally I made it back to Lerilin as a ghost, resurrected and went back with my Fire Elemental to reclaim my loot. Upon reaching my corpse however the server crashed, and by the time it came back the Bone Mage had killed me again, as well as my lvl 8 FE! So, I returned to Lerilin and explained my story to a few players at the bank, and after hearing it one of the higher lvl ones very generously gave game me his spare Stave of Power. But alas, no sooner had I received it did the server crash
again, and since the save interval hadn't been reached I didn't have the SoP when I logged in the next day.
So yes, it does happen.