well, the Lumia 830 and 925 both have capacitive buttons and are very slim for example, so... don't think a phone needs to be a lot slimmer than those.
if the screen breaks so do on-screen buttons - they might malfunction as well if the screen does. Breaking the screen is always awful no matter what. Capacitive buttons are reliable enough; maybe not more than on-screen ones but more than physical ones (i'm looking at you, iPhone). I'm yet to personally meet a WP user who suffered for a capacitive button that's gone bad, unless it's a manufacturing defect or the phone sustained water damage.
obviously, as long as you're using them they remain static on screen, and i'm sure people do use a lot back and home button, so that's where you have bigger chances of acquiring burn-in. Of course there are others factors to consider, like brightness. I do agree it's not so easy to acquire them though. 6 months using a 930 and so far no sign of burn in on the top, where static elements are displayed for long periods - like the clock, battery icon, wifi, etc.
i still think it might be a issue on the long run for those people who keep a phone for a long time and/or tend to "abuse" their screens (high levels of brightness for long periods of time and a lot of screen on time, for example)