If a machine stitch was insufficient, every sheath and holster maker in history would have a bad name. Look, I'm all for hand stitching (since I don't have a machine) but let's be honest here - how much abuse is a knife sheath supposed to take before the stitching becomes a failure point? Especially if you use contact cement to hold it together in first place? As far as a running stitch pulling out, that's a good reason to put a tiny tab of super glue on the bitter end and lay it down flat.
I get that things fail, but here is where it becomes appropriate to discuss what constitutes normal wear and tear. If you wear the stitches off your knife sheath I have to ask how you managed to do that. I have to ask if you also wore your hip out rolling back and forth over your knife while taking transmissions out in your driveway every night. You didn't think to take your knife off?
The old sheaths I've seen with the stitches falling out were victims of age and dry rot.