While the idea is great, the implementations suggested all suffer in my opinion.
Disclaimer: I dislike the idea that the player is entitled to making wishlists and generally getting what he want. I strongly oppose any metagame communication. I want the treasure to be placed by the DM, but still be sufficiently generic to be usable by all.
Handing out "item levels" is metagamey and fiddly. How exactly do you hold back some treasure from a single PC (without discussing it with the player and telling him to not have his PC grab his fair share)? And there is no actual treasure?
I would far prefer (and I'm still waiting) for WotC to implement this idea in a way that doesn't require the DM to discuss his PCs treasure with the players, ruining the immersion and the illusion that the treasure is "random".
For instance, instead of handing out "item levels", I want the game to feature magic items that are consumables containing these upgrades. A energy gemstone perhaps that can upgrade any item's enhancement bonus by +1. (That's the equivalent of five item levels; with the benefit that anybody in the group can use it, regardless of which weapons, implements, neck items or armor he or she fancies)
This way there's no need to artificially keep a certain character from claiming his share of the loot. The character who selects this magic jewel simply doesn't get some other item, and that's that.
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Legacy items sounds like a great idea. I gather you're saying these items come with a ritual (of sorts) built in? You sacrifice residuum (or whatever) in a tasteful ceremony appropriate for your kind of character, and that is simply translated into item levels (sacrificing 4,000 gp is enough to bring your armor from +5 to +10. Yes?)
This sounds like a wonderful hands-on non-metagamey solution, and I wish the AVs would have included them over the terrible and abstract wish-listey player-entitling approach!