For this suggestion, +10'ing an item wouldn't mean increasing defense. I believe it would be a special upgrade, so defense wouldn't probably be increased.
I actually really like where you're going with this. The gemstones seem like a really great idea, and having it only apply to a certain armor really sounds interesting as well. Although it reminds me of another game (different from RO), it actually sounds really appealing if we were to add it here, on fRO.
The stats of the gemstones seem semi-fair. I think probably after refine rate 5, it would start increasing by 2 INT. And then at 9~10, it would increase by 3 INT. So, if you were to calculate this, it would end up being a total of 17 INT. Take into consideration that the percentages of reaching +10 refine rate is extremely low, so I think we should make the stats worth-while to have.
About the idea of having a percentage to break, it seems alright to have it break. I would expect to see many tickets and complaints about "omg gm pls return my f armor!! i keep refining and den wen i refine to 9... it dissapear! pls return!! " If that were to happen, we'd probably add to the NPC, "Warning: You are about to refine it to +8 with a 10% chance to break, are you willing to take the risk?" and it would give a few warnings before you actually refine it. So personally, if we were to add the percentage to break, it should be lower. Overall, the refine rate list seems fine to me.
The quest idea sounds great as well, if we could make it an interesting quest, it'd be interesting to do.
We can color code the +'s. For example, taking Kusanagi's example with the Fire Ruby (STR) for the helm, it wouls appear as a red + refine rate in front of the item.
Example : +10 Blue Imperial Valkyrie Helmet
Yes, I believe there is a way. It should be similar to the Valkyrie Exchanger NPC, where it takes your item and exchanges it for a new one. So for example, if we had like a +10 Forsaken King Armor, we would have to go to this new NPC and select the item that you have and exchange it for a completely new one. But since this idea is most likely for Forsaken King Gear and Elite Gears, it's going to be a long list for the NPC, and a lot of coding.
It's possible. It's just going to take massive amounts of coding. Literally, massive. Again, it will not always have to affect defense.
Sorry for the long post.