After operating a good-sized layout for the last 40-some years, I can report that wheels most definitely wear out. I've seen the nickel plating worn off of brass wheels, and a slight depression form in the middle of the wheel tread. I've also seen flanges worn until they were paper-thin. Steam locos that do not have all geared drivers are the first to go as the delicate siderods wear and break. Meanwhile, I've seen very little wear on the rails themselves. Think about the ratio between the railhead on a layout with a few hundred feet of mainline as compared to the circumference of a wheel, and you can quickly grasp why wheels wear far faster than the rail.