Under the system I recall, the item only loses max durability when being repaired. If it hits 0 "current" HP, it disappears. If repaired, it loses 1 from its max HP, and its "current" HP is reset to its new max HP.
Hmm. I could have it wrong, too, but as far as I can remember and understood the system, at the time, it worked like this: Items have HP/HPMax values. Use degrades HP. Repairs work as you described. However, when an item hits 0/HPMax, every use (or durability check?) causes -1 to HPMax, with the item breaking at HPMax=0. There was a warning message related to this, saying an item was in need of repairs and/or in danger of breaking. Depending on the item's original HPMax, you could use it for quite a while in this fashion, without it actually breaking. If it already had degraded or low HPMax, you'd only see that message a few times, and poof. I'm fairly sure this carried over into AoS, when you could first see 0/X durability items plainly with a vanilla client.