As the title says, I went to Xur with my ready to go Lucky Raspberry chest armour and instead of upgrading, he reset it to default.
Needless to say I've lost a level and all the progress and Strange coins I needed to buy the Exotic Shard, which was wasted in the attempt of course.
To everyone else; have or has this happened to you?
And to BUNGIE: What are you going to do to fix it?!
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That's how the exotic "upgrade" system works. If you trade-in an exotic (even a v2 exotic), all XP progress is reset. If you have a v2 exotic armor piece, the only reason to trade it in would be if you like the stat roll of the one Xur has better. The UI will let you trade in a v2 exotic for a v2 exotic.