It really seems like 3* gear does slightly, if any, better than 4* gear in Tier 2 with the nerf.
Would lower star gear ever outperform their higher star counterparts?
I recall a 2 star caliber gets almost the same dmg in teir 1 then a divine avenger on everything but construct and undead LOL and more dmg on gremlin and fiends.
I definitely notice a benefit to using 4* gear in tier 2 versus 3* gear, however there is little different between 4* and 5* when in tier 2 (except for bombs which still get the increased radius, alchemers which get more riccochets, and certain armor which has medium bonuses instead of low). Actually, that's a lot of things that are worth upgrading even if you're not going into tier 3.
The only reason to avoid upgrading something is so you can use it in tier 1 or 2 Lockdown.
Are you comparing fairly?
A level 10 3* item could be slightly better than its level 1 4* counterpart. But if you heat it to level 10, there's absolutely no comparison.
Same with the upgrade to 5* - I was surpised to see that when I made my Combuster, it would make less damage than the level 10 Blazebrand o_O.
But, as it heated, the damage increased way beyond anything the Blazebrand could do in the same stratum.
...or at least the Wiki says so (for now)
Leviathan Blade deals less damage in later floors of T2 than the Ascended Calibur.
it does, 4/5* equips get nerfed outside of T3. anything 3* and below has no penalties. but theres no real point in keeping equips at 3* just b/c of that. even with the damage penalties and what not, the difference isnt that huge. you can still breeze through T2