i know its a bit late for this. maybe someone else noticed it.
i wanted to upgrade a doohickey during gond but wait until the end when i had more of my own mats. so i protected one, stuck it at the bottom of my inventory and forgot about it. without realizing it i sold it to the vendor for a bag.
when i finally noticed it was gone i protected another to see and yeah it could still be used at the vendor. okay then, i protected one and put rp into it so it would be char bound. the vendor still wanted it. now i try putting one in my potion bar. char bound and protected, vendor actually takes this one BEFORE the ones in my bags lol.
anywho after all this i was reluctant to upgrade one to legendary until the last day for fear of accidentally selling it for a bag.
at least now i know he wont take the leg one. still, doesnt seem intended for a vendor to take something you have protected, or especially equipped