I've heard about the evils of storing a blade in a leather sheath, but never adhered to them. ("I'm a rebel, dammit!")
I've never had any problems with discoloration/rust/whatever. I also have a CS Kukri that was placed in its sheath about a year ago and placed in my dresser.... gimme a sec, I'm gonna check on it.... okay, I'm back (Yeah, I really DID check!)
I was just reminded that I had polished it with Flitz before putting it away, and left a coat of it on the blade. I buffed it out (just now) and it's in the same condition as when I stored it. My order of ToughCloth's came in late last week, and I'll coat it with that before storing it.
Post again same time, next year, and I'll let you know how THAT worked out. Just in case we forget to check the forum then, I think I should tell you that I feel 100% confident that the ToughCloth will do the job fine.
I THINK (and I'm really stretching my memory here) that knives with a HI CARBON content might be more susceptible to the ills of leather sheaths... something about the tanning chemicals in the leather interacting with the carbon in the metal or something, but I'm not a metalurgistical kinda guy, so I may be wrong.
That's my two cents. Hey! How come you're giving me change?