Is fighting in town clothing a bug?
This is a known thing. Environmental weapons and the like allow this to happen. Engineer kits do the same thing.
Consider it a loophole to the insanely stupid decision to not allow people to fight in town clothes if they want to. They’re so busy trying to “monetize” everything, but they the ignore the fact that it would vastly increase sales of town clothes if they were displayable in PvE combat.
I do admit Shirtless, Wizard with boxing gloves fighting with a flame sword is quite a funny sight.