I have been replacing and repairing wood frame and wood sash windows for several years and have SLOWLY LEARNED what I think is a major problem.
In the "olden days" when putty was used as the primary glazing compound EVERYONE knew that the paint had to cover the putty and carry over onto a strip of the glass because not doing so would allow the putty to dry out and crack.
With dual-pane or thermo-pane sealed windows being factory glazed with tape and/or caulking everyone ASSUMED that the paint no longer needed to go over the glazing and onto the glass. WRONG!! That assumption has ruined thousands of wood sashes. At the wood window manufacturers websites they say that the paint should go onto the glass -- as the first line of defense against moisture penetration.
See Painting & Staining Marvin Windows and Doors - Wood & Aluminum Clad
where the following points can be seen;
Before finishing, run a strip of masking tape along the edge of the glass.
If you are using paint, leave a 1/16" (1.5mm) space between the tape and the wood bead which will allow you to lap the paint onto the glass for a proper seal.
But very few painters or home-owners do this -- ie. read manuals or instructions -- so moisture gets into the sash and creates conditions for dry rot to occur.
Fortunately it is often not too late to paint windows properly -- after having used caulking to fill the exisiting gaps -- both inside and outside. Of course the painting will only be done when the wood sash is adequately DRY, as determined by the use of a MOISTURE METER....Right??
And believe me that most -- probably 90% -- of sash and sill decay starts with moisture from INSIDE the home escaping, rather than rain penetration. Failure to control humidity and moisture levels in newer houses is going to lead to lots of mold and rot problems as a result of excessive efforts to keep heat from escaping. Bigger problems will result from houses being built too air-tight today when compared to the problems of drafts and cracks in older homes.
Anyone wanting to replace windows will quickly learn that wood windows are way more expensive than vinyl windows so it really is important to give your wood windows the TLC they deserve...just DO NOT EVER put vinyl or alumium capping over the sill or bottom sash. The capping HIDES the problem of peeling paint but does not SOLVE the problem.... and under the capping things can get really ugly.