I would go with number 4, other.
Go with what is actually in Dragons of Autumn twilight. Get that by reading, and working it out ourselves, subject to your review.
So give all the characters their signature items: rabbit slayer, the Staff of Magius, the Bright Blade, etc.
Then do something like I put in my list above. At most the non-signature items should be masterwork, and magic Items should not be up for purchase. Flint's axe (He is a master craftsman), Tanis 6 enchanted arrowheads (Made by flint, so masterwork, and enchanted by the qualinesti Court Mage) Tanis's Sword was masterworked by Flint and given to him as a present. Things like this would be cool to use, Sturm's Masterwork armor, etc.
But you should probably make the decision, and its generally pointless to buy all this stuff if we just lose all of it but the signature stuff in flight from Solace anyway.