Slayer's Guide to Demons and Dragonlords of Melnibone both have demon bound item creation rules but I've not been particularly inspired to use them. Encyclopedia Arcane Demonology might as well but its been a while since I read that one.
Stormbringer/Elric had a great system, but I'm afraid that Dragonlords of Melnibone does not port it too well. I could probably jazz it up with a few house rules, but that's not currently on my to-do list.
Mongoose's Demononology has a pretty flexible method, though it doesn't fit very neatly with the existing item rules. This book is updated to 3.5 in the Encyclopedia Arcane Compendium, but I don't own it to comment on whether its been improved.
The Demonician PrC in Dezzavold: Fortress of the Drow is probably the tidiest take I have seen.
You could use the Devil or Demon-Bound templates from Green Ronin's Advanced Bestiary and just apply them to the gear directly. They are very specific as to the exact type of fiend that is doing the possessing.
Maybe also look at the Item Familiar feat from Unearthed Arcana to get around any chance of possession of the pcs.