That's not really what he means.
Yes the entire world is technically an 'instance' but there are also the high level areas such as The Deep, Urgoz's Warren, FoW, UW, DoA, ToPK etc. where you can get boss loot
Armor doesn't drop in the missions/explorable areas either, you have to buy it. But yea, bosses all over Factions, Nightfall, and Sorrow's Furnace in Prophecies will drop "green" weapons, which are usually good weapons with max stats and a good weapon requirement (requires 9 of the tied attribute like swordsmanship and marksmanship).
And also, whenever you leave town, you enter an instance. Instances are what make up Guild Wars. There isn't much, if any, persistant world like WoW.
In WoW, gear is extremely important, with high quality gear making a character significanlty more effective. Thus, to make a character better, you need to get elite gear.
In GW, however, gear is not so important, as gear with maximum effects is generally available from crafters and collectors. Everyone can get a weapon with the highest stats relatively easily - within a day of work or so. It's part of the balance of the game. Prestige comes from having better looking gear that has no better stats than basic gear.
Now, going for valuable stuff, there are several area that are intentionally extremely dangerous, but where the rewards are also great. Examples include The Underworld, The Fissure of Woe, the elite missions Urgroz warren and The Deep, and hardest of all - The Domain of Anguish.