This system makes a little less sense in non-magic worlds like Fallout and Mass Effect, but having it and justifying it with better technology or whatever would so improve game experience and replayability that it would easily outbalance any negatives. It seems so obvious to me, and I would assume many gamers, the way to go in these games that its almost comical they that so consistently fail to deliver. Allow me to elucidate:

1) Have a large catalog of item types for each body slot. Items have a range of base values for damage / defense / whatever you want to call these. When you find an item of this type, the value is randomized in the range. Higher quality item types have higher ranges and drop from higher level monsters.

2) Have a large catalog of modifiers that improve damage, defense, light shit on fire etc. These mods have ranges, with higher quality mods of the same type having higher ranges and dropping from higher level monsters. On occasion an item that drops will be magical and have some number of randomized mods on it.

3) (I have yet to see this in a game but REALLY want to) Have a large catalog of modifiers that make items LESS useful.

3) Have some items with some fixed modifiers. These items are rare and have unique names.

4) Add challenge areas to the game that can only be passed with exceptional equipment / high level characters (so not at the point when you reach them naturally in the story). This will give the players things to kill with all that tricked out gear. Give small but meaningful rewards for passing these challenges (the Achievements are clutch here).

5) Allow the player to keep playing after the story is over / import powerful characters into a new game. Actually, both of these things, its so easy why not? I would really love to see a game where something catastrophic happens near the beginning that can actually be stopped by a sufficiently high level character, but if it is stopped, rather than just beating the game at that point (Chrono Trigger style) there’s actually a whole new story (shorter for practical reasons) that plays out. So when you kill the big baddy in act 1 and save your hometown, instead of the credits rolling you get some nice alternate story to play through for a little bit as a reward. Another option which might frustrate less than serious gamers, although I would find amazing, is if in the regular story, you get to a point (maybe 5 hours in or something) where the game gets REALLY hard, so it basically forces you to import your characters into a new game and start over to advance. You could even make some changes to the first 5 hours that lead the character down a different path. For example, you’re a nobleman’s son, and he needs you or your brother to lead a group of men in battle for the king. He has you duel to see who is the better swordsman, you lose, and after he and your brother go away you spend some time defending the castle (and get more powerful) but are eventually overwhelmed and everyone inside is killed. Yuo import your character into a new game, this time you beat your brother in the sparring match and go off to war with dad, while of course your brother stays home and gets killed.

I especially love the “Still Alive” song at the end, which got me started in Jonathan Coulton fandom. Head over to http://www.jonathancoulton.com/ if you want to hear more of his stuff. My favorites are “Future Soon” and “I Crush Everything”. I naturally enjoy “Code Monkey”, too.