Jackie
Oil tanned leather does make a good working sheath. The biggest problem is that only a few of the harness leathers are true oil tanned today. All the latigos here are not true oil tanned anymore. They add a dubin at the end of the process to simulate the old oil tan.
True Veg tanned leather will not rust your blades unless you get them wet and then leave the blade in them. The leather that causes rust are the chrome or chemical tanned leather. Just the humidity in the air will cause oxidation in the chemical tans.
Hope this helps. RS