I've thought about scaling xp and wealth back, but I don't want to do it on an even ratio. If you reduce everything by say 50%, that means it takes twice as long to level (ok in my opinion) but it still means the PC's will have the same amount of magic at any given level, it just takes longer to get it.
I realize lowering magic equipment makes casters more powerful, that's why i was considering the prestige class route, with a lower spell cap, perhaps like d20 modern. Ideally casting clerics would be REALLY rare, and would have to earn their powers, and this would have the side affect of reducing raising and access to easy healing. I'm not so sure about wizards, I like the wheel of time magic system and have an idea how to rework it to my world.
I am growing more and more in favor of xp based on story, as per based on kill. I think earning xp based on how many critters you slaughter really works counter to RP. Despite my stating I give xp for avoiding uneccesary encounters, it never really sank in to my players heads. I would have situations where they would attack something with hollow justification because they just needed a few more hundred xp to level. When I run D&D I tend to do it a lot. Ideally I would like to have PC's level up about once every 4-6 adventures, with an adventure being close to an hour long tv show in pacing I suppose. That would be easy to do based on an xp reward per overall adventure difficulty.
Wealth I would lower to a silver standard I think. I would like to achieve a semi-realistic viewpoint on wealt-a fighter's set of full plate would be a prized possession, and favors and land would be a viable source of income. I find that greed tends to lead to a lot of hack n' slash as well.
My item creation idea should be a bit more explained I suppose. If I changed wizards to a wheel of time type of caster, they get feats every other level, a sacrifice in casting power could lead to creation feats, more often than a standard wizard. The feat would allow the creation of one permanent item, but the item could be upgraded by the creator. So at low levels a wizard could make his fighter friend a +1 sword, but continually upgrade it as they adventure together.
Protaganist would tend to me humanoid. Magical monsters would have to be very rare because they would become incredibly challenging to a low magic party. I think the main thing I am shooting for is that a PC wins because of skill, not the amount of magic he has. By the book a PC will beat an equal level NPC, not because he has better skill but better goodies, that bugs me at times, especially because if you give the NPC more items to compensate, you just make the PC more powerful if he wins.
I believe I'll start drawing up my version of a low magic campain, and pose the ideas as I go along. Thanks for the input, I would appreciate more, especially on the actual mechanic changes that must be made to lower the magic threshold.