IMO player wishes are very important for keeping them engaged and excited about their PC's, but as a DM I can't bring myself to allow wish-lists to completely define magic item allocation in my campaign.
This isn't because I somehow can't reconcile game vs. simulation, because I can: I simply see wish-lists as an expression of the same good luck and untapped potential that makes the PC's heroes in the first place. Rather, I've played the game for a long time, and to me random magic is part of the the fun of D&D. (I also have a problem with getting players to generate wish-lists in the first place!)
So the rules I currently play by are:-
* Some treasure parcels will be random magic. If they find it useful, brilliant; if they don't, well, that's life in the dungeon. May have impact on character wealth... but that's my problem to solve not theirs.
* Players are more than welcome to submit wish-lists at any time, and I will fold those requests into the campaign. They may, or may not, find wish-list items.
* Players are *required* to submit a few words on the general thrust of their intended character progression. So, the Fighter might tell me he intends to follow in the path of his infamous uncle and become a two-handed charge specialist favouring attack over defense; the Wizard might tell me she prefers control over damage and never wants to have to worry about her allies getting caught in the crossfire; the rogue might tell me battlefield mobility should be his signature, flitting in and out of melee leaving no throat un-slit in his wake. There's no limit to the amount of detail they can provide and it allows me to do some of the work for them and tailor their rewards to their goals without relying too heavily on specific items.
* I often place NPC's or locations in the campaign that allow them to enchant, enhance, or simply conjure magic items out of thin air. That way they can turn that heirloom longsword into a +2 weapon without replacing it, or pull items from their own wish-lists without breaking immersion.
This combination seems to be working well so far.