Bring the Boom
Spells like fireball and burning hands make the distinction that only bits of paper and kindling you’re not holding burst into flames from the spell’s effect and that anything you’re holding is immune to the ravages of purifying fire. It also means your clothes are also immune, and you’re not going to be rendered naked by a few untimely flaming spheres. Modesty is retained!
Now, of course, this is to prevent characters catching fire and taking ongoing damage and slowly being burned alive. Or something valuable, like a wizard’s spellbook, being destroyed.
With any edition (not run by an unimaginative rule-layer of a DM), a player who puts his/her character in oiled rags is just asking the DM to roast the PC alive!
WoC are really trying to play it safe and kid-friendly for the players. That is setting a really bed example for the kids, as it only teaching them to become modest, overly-polite, boring adults.
Also, easily ignited ones….
I doubt it’s making the game “kid friendly” so much as trying to avoid arguments about whether, oh, the body hair of a bugbear or yeti is flammable and catches on fire for ongoing damage.
Obviously, clothing made entirely of oily rags held together by tar and paper twine is an absurdity that should ignite regardless of what the rules say. Which is kinda the joke…
Actually, the Necklace of Fireballs has text relevant to this sort of thing; if its wearer fails a save against a magical fire attack, the Necklace makes a save as well to avoid detonating on the spot.
The Helm of Brilliance is similar; if its fire resistance is overwhelmed (the wearer takes 31 or more points of fire damage in a single hit), the wearer has to make a Will save to avoid it blowing up.
So yeah, if you’re wearing something particularly flammable, you could still be subject to the rules for Catching on Fire if an instantaneous attack like Fireball hits you.
…Actually, re-reading the SRD, it says that Fireball is capable of melting metals. Imagine someone’s gold pieces being melted by a fireball hit.