I never played UO but read a fair bit about it. I was under the impression that all of the gear was perfectly mundane (player crafted often, no bonus stats, magical properties, etc) and skill/ability was entirely based on your character skill choices and their respective levels? Or was there slightly superior weapons/armor that was so rare you never used it since your gear was fair-game upon death?

Did you lose gear from both monster and player kills?

Yes, everything dropped on your corpse on death.

The vast majority of gear used by people was crafted by others, but higher level monsters dropped magic items that increased their accuracy, damage, or durability. Or, had a "slayer" affix against certain enemy types that caused additional damage toward them. For example, might find a "Silver Katana of Vanquishing" that would vastly increase damage against liches or other undead, which would have been a highly coveted item (and a nice prize for a PK who found you deep in a dungeon with practically no escape).

Yes there was more rare gear, like bone armor that you didn't want to be ganked.

When you died, by either monster or player, your corpse contained all your possessions. If you could get resurrected in time or you had help you could get all your stuff back.

In the game's early incarnation this was the case. After a while there was special materials for weapons, and armour; Items with special properties; echantment; etc. Eventually the power creep accelerated to ridiculous proportions after WoW had set new precedents.

It's almost worth creating a novelty HN "UOGhost" account, doing something extremely obnoxious to get it shadow banned, and then haunting around replying "OOOooOooOoo OoooOOO" to live people's comments.