Wow, really?
By about 5th level, with a 10% investment of his wealth, never mind the rest of the party, the wizard can craft/buy about 30 scrolls of each level that he can cast. Certainly easily done by 7th.
Bang out a couple of wands of this or that and you've got a pretty much endless supply of very, very useful spells and the casters memorize nothing but offense and defense.
Even with a lack of down time, this doesn't actually take much time. It's a pretty rare campaign that doesn't have three months of down time in five levels. What is winter for after all? Day here, day there, it all adds up.
How much time passes in game for the group to gain a level? How long is a campaign generally in game time? My campaigns tended to span years. Travel by ship means tons of downtime for crafting, as one example. I've never found it particularly compelling for a group to zoom through ten or fifteen levels in a single game year.
The last campaign I ran was a group on the run through the wilderness that had almost zero down time. The one before that was based around a keep and had loads of down time (but still no one crafted items). The current not-really-a-campaign game that I'm running is another run through the wilderness with no down time.
Stylistically, I tend to try to focus a campaign on the most action-packed part of the characters' lives. My overall sense is that most people with levels in adventuring classes gain those levels over a relatively short period of time, and then retire, like professional athletes. Most magical items are sold by retired wizards, retired fighters become landowning nobles, rogues take over thieves' guilds, etc. If you go by the book (which I don't, though my results tend to be similar), the 3e rate of advancement is 13.3 encounters per level. That means that fighting an average of one
per month would get to to 20th level before middle age (and that's just for a human, let alone an elf). Obviously, this doesn't actually happen, because most career adventurers do not reach anything close to 20th level. So I tend to assume that an adventuring career is a fast-burning flame.
I also tend not to have my PCs in urbanized areas, and I don't assume they have easy access to supplies.
But the bigger issue with item creation I think is that they don't want to be sitting in combat with a feat on their character sheet devoted to scribing scrolls. They've been taught to live in the moment. My group also has always had a preference for non-casters, and they typically play themed casters when they play one and are not really min/maxing the utility spells. It's hard to explain why; that's just how they are.
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As to how much time passes in gaining a level, I'd say it's typically a couple of weeks in-game of high-pressure adventuring amounting to two or three combat encounters and various other hijinks. I don't track in-game time closely, but I'd say my last campaign, which ran levels 1-8, was probably a few months in-game (with one long break that was spent on a ship getting back on course after a teleporting accident). My next one will be very different, but then again they all are.
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Again, I find it interesting that item creation is such a big point of difference between groups. It's probably one of the major differences between 3e and 2e (which IIRC doesn't have the same kind of rules for PCs to do it). I suspect that the average 3e game includes no item creation by the PCs, but the reports of what happens when the rules are used (and abused) suggest to me that it's a part of the game that needs serious rethinking. I also am not a big fan of the wand/staff items as being simply charge holders with crappy spells; if anything a wizard's staff should be considered an "implement" (which is one of the few 4e-isms I think at least conceptually makes sense).
