An addendum which I forgot regarding switching out characters...
I completely allow it, and am actually more than happy to allow my players to have 1 semi-retired character who is indirectly involved in the plot-line, whether that's as a contact, knowledge resource when they are in the right area, or a stunt double when their primary character has enforced downtime (such as learning a new specialty/prestige feat or joining a prestige class which requires drawn out indoctrination, et al).
I have 3 players who have such "alts". They rarely enter the campaign, but do provide a sense of accomplishment to them as having taken a character as far as they conceived them and had some form of lasting impact on the game world, then being retired. Other players don't, and one actively avoids the concept since he believes that one should focus on a character and that having backups/alts detracts from such focus.
As for items, while most of the characters have personal items, the Company of adventurers has agreed as a whole that for the duration of them fighting against the scourge of the Dark God, any items they loot are effectively owned by the group and worn by whoever can make the best use of it at the time and given the total loadout of the party. When looted items are sold, a equal share is given to all members, and two shares to the party's group fund. Should a character retire, he takes with him a fair share of items to make his way in the world, trading coin or items with members who are staying with the party for other items, if said continuing members are willing.
It works really well, with rare friction with a couple of players who're former loot monkeys. They've been mostly broken of their "Mine! Mine!" habits by the common sensse of the group as a whole, though.