Power is reduced in a real aircraft to extend the life of the engine, not to prevent it from immediately breaking. This is a bug that has already been reported, though there hasn't been any official response from 777, yet.
P.S. Strange engine break downs are being observed in other aircraft, too.
Actually no. If you keep engine at max rpm, it will cause failure - sooner or later. It's called limitation for a reason.
Early rotaries were full on or full off (blipped). There was no real throttle. When they were flown in level flight they were running flat out. Later rotaries had crude throttles implemented by causing some of the cylinders not to fire. I'm not sure how much this was used. In any case I don't think that a long engine life was expected.
I would guess that inlines were a different beast given that they did have proper throttles. From a game PoV I'm not sure how much it matters. I think that modeling the possibility of failure in combat when the engine is being abused is a good thing. It gives the sim pilot the same option with the same risks as a real pilot had - take a chance on blowing the engine or take a chance on getting shot down.
I am not sure that modeling wear and tear over time is a great idea, unless we start adding facets such as supplies, replacements, etc. to the game. To me that is a bit much. I don't mind the assumption of a functioning engine.