Does anyone know if the performance of solar inverters degrades over time? If so what is the mechanism?
I don't think the inverter would appreciably degrade, since they tend to be more ruggedly designed than conventional power supplies (no electrolytic capacitors, for example).
If you live in a dusty environment, surface dirt on the panels can degrade their performance significantly, but this is reversible with cleaning.
They typically have shorter lifetime than the panels themselves, perhaps 5 years. As with all other power electronic components, I guess it is your typical wear and tear due to thermal expansions/contractions, and hence they advise outdoor inverters should be place away frm direct sun.