You pretty much covered it Deson. But it wasn't I who argued about the pally hat, I've long argued for a mid tier crafted gear though.
In short, you can have 2 identical pieces of armor down to the point where they are level worn. If all things are equal, the higher level piece will always have a better mitigation percentage. It is actually possible to take a piece of armor with a slightly lower mitigation but a higher level wearable and increase your effective mitigation.
I've heard this holds true for attack rating and weapons, but I've not really done alot of testing on that, so I won't comment other than to bring forth that it wouldn't suprise me if this were in fact true.
Now, while this has a limited impact on most classes, those who need the mitigation to survive (tanks) get hit especially hard by the crafted armor, because they are the only classes who's main purpose of the armor is scaled in such a fashion.