Blizzard now has a hidden personal rating which never changes no matter how many teams you leave/join, attached to each character. Team matchings and point win/losses are based off that now, using a formula Blizzard hasn't talked about. So in essence if a person with a previously higher rating joins you, probably you both will average out to a "higher" hidden rating, meaning you will match up with better teams, and when you win you will get more PR but he will get less. Its kind of setup to balance out after a lot of games, but if people play together only a few games its going to look very weird (as you saw).

I do not believe its based on gear at all, but of course it'd be easy to test -- both of you get naked, put gear in bank, join a game and see how much your ratings change.