Ah, the great debate: full transformation or just the skin? I suggest both, and I think it could work pretty well. For a full transformation, your items would remain equipped, but become invisible until you changed back, as with the Grunny or Bat item transformations. For just a skin-change, though, your stuff would remain the way it was.
As for duration of effect, I think you should be transformed the entire time the ring is equipped, and simply turned back when you take it off -- that way you could change conveniently back and forth at any Shardfield.