Noah,
I haven't been LWing for very long, but I do craft a lot of stuff out of a lot of different materials (for fun, just to see if it will work). While I don't know of any Leatheresque materials that could be used as a substitute, azrider made a good suggestion..wood. I know wood can be molded and shaped into all sorts of shapes and things, and azrider said they had a decent attempt at tooling on it. Wood burning/stamping along with molding the wood, in my eyes could make an awesome sheath or even a pouch of some sort.
Go to your local hardware store or hobby shop and see if they have any balsa (or any other thin porous wood). Soak this in a pool of water for a day, and you should be able to bend it over on itself, than you could mold it to the knife, and sew it up, just like leather (well it will take some getting used to, but generally the same). once you figure out how to make one, try tooling one and then folding it over and continuing.
If you are more into the tooling side of the LWing, then; although it doesn't seem to be, silversmithing and hand etching are actually quite a close fit to tooling leather, in some respects. I don't know very much about silversmithing, so I will leave that to someone else...
As for a Leather replacement, as I said before I don't know of any..but, very heavy paper (maybe even posterboard?) would be thin but I think still carvable/toolable. Think vinyl, I don't think would hold a stamp, or any carving, but can give the "leathery feel" to a piece.
There is some information on http://en.wikipedia.org/wiki/Pleather that may be of value, they have a section on vegitarian leather.
As for the girlfriend... relationships = compromise.. compromise = sacrifice.. There are many things in this world to sacrifice, love isn't usually one of them in my book.. but then again, this is coming from a hopeless romantic
I don't think the girlfriend part had anything to do with your post, so that is your own business, I wouldn't take relationship advice from a LW forum, ha ha
Hope this was helpful in the midst of chaos,
-NoRemorse