Thanks for the feedback and corrections!
Here is a brief description of my group and style for background.
I think that game style has the biggest effect on determining what is "balanced".
All the players in my group have jobs that are at least full-time, or very close to it. Several of us have jobs where we dream of only working 40 hours in a week. The average age in the group is 30. We normally game once a week, and hopefully get 5 hours of gaming in during session. We don't have the time to devote to doing lots of original work, so we tend to take published adventures/modules and modify them or tie them together.
Everyone in the group has DM'ed in the past. There are three of us that DM now, each with their own campaign. We switch off every two-three monthes to give each other a break. We try to keep the rules consistent between our campaigns. Our sessions tend to be encounter driven (key events) with the smaller stuff handled "off screen". Rarely is the visit to the merchant roleplayed out anymore. Again, this is due primarily to time limitations on the players part. I hope other players have more time to devote.
Now the Mea Culpa: I obviously used the wrong values when comparing the Headband of Moradin's Mercy to a Wand of Cure Light Wounds, one of the many dangers of posting in a hurry. Aplogies, and I will be more careful. Thanks to Petrosian for the correction!
An NPC could certainly make this item, but we tend to leave original item creation to the charcters. It is more fun for the players and creates the feel that the character is special. These are the kinds of items that get names and build up histories. NPC's that have original/unique items tend to have them because they are included in the adventure we are running. There are several "unique" magic items in RTTToEE that NPC's have that players do not. That said, players know that any type of item they have is fair game for an NPC to use or vice versa.
On comabt use versus post-combat use:
Our experience has been that the Headband of Moradin's Mercy has little combat value. Our group rarely uses it is combat, forseveralreasons.
1) As the characters advance in level, that 1d8+1 really isn't all that helpful, compared to the amounts of damage being inflicted. By 10th level, you had better be using some higher level curing spells.
Hint: If you are relying are CLW when facing enemies that can throw dispel magic you are in big trouble.
2) It is easy to use a dispel magic on the headband. While this rarely comes up, it has been used to suppress the Headband. It was in a close fight and enough to tip the fight in the villain's favor. This occurred when the players first created the item and relied on it to much. Now they know there is a reason caster level is important.
3) Villains are not stupid. If they notice an inordinate amount of healing occuring, they can incapacitate the person with the headband. Tanglefoot Bags, nets, or simple grapples are highly effective at this, especially since the physically weaker characters are the ones that normally wear the Headband.
In post-combat, it hasn't made a huge difference. Sure the party can heal up quickly, but chances are they have exhausted most their spells already. They still try to retreat/fortify and recover spells before they get to the next big encounter. As the characters increase in level it is not hard to "get away" or find a safe place. especially with spellasters in the party. If the party is forced to fight before they can recover spells, then they will have more hitpoints. Without spells though the party will have a very tough time of encounters of their level, with or without the extra healing the Headband can provide.
I would let an unlimited charge identify item be created according to the formula. Of course, since it has a costly material component it won't be that cheap, even with the creation formula. The biggest issue with such an item, to me, is how quickly it works. If it still has the 8 hours time aspects, definitely not a problem. We don't encounter enough magic items to make it worthwhile though. You'd be better off with a Wand or Scrolls.
A question on pricing. Does the reverse also hold true? If I would never conside buying this item over three Wand of Cure Light Wounds are they to inexpensive? Or is the item to expensive? I also think that opportunity cost figures in, Do I want the Headband of Moradin's Mercy, or a Wand of Cure Light Wounds AND a Wand of Summon Monster I AND a Wand of Charm Person? Depending on the character, that is a much tougher question to answer. Wands or also available to characters with less money. Why would anyone drive a Kia instead of a BMW? You should be able to get a lot more utility and longer use out of the BMW, but many people just can't afford it while simultaneously making the house payment.
What I would change about this item:
1) Make it function as a spell trigger item, but still have it priced as a use-activated item. I don't think this is a balance issue, but more of a flavor issue.
2) I would like to have each one associated with a deity and "aligned". If you don't have the correct alignment, negative level while wearing it. It seems to fit the feel better for me.
Thanks again for the feedback. It is appreciated, even if it is not always agreed with.
Here is a brief description of my group and style for background.
I think that game style has the biggest effect on determining what is "balanced".
All the players in my group have jobs that are at least full-time, or very close to it. Several of us have jobs where we dream of only working 40 hours in a week. The average age in the group is 30. We normally game once a week, and hopefully get 5 hours of gaming in during session. We don't have the time to devote to doing lots of original work, so we tend to take published adventures/modules and modify them or tie them together.
Everyone in the group has DM'ed in the past. There are three of us that DM now, each with their own campaign. We switch off every two-three monthes to give each other a break. We try to keep the rules consistent between our campaigns. Our sessions tend to be encounter driven (key events) with the smaller stuff handled "off screen". Rarely is the visit to the merchant roleplayed out anymore. Again, this is due primarily to time limitations on the players part. I hope other players have more time to devote.
Now the Mea Culpa: I obviously used the wrong values when comparing the Headband of Moradin's Mercy to a Wand of Cure Light Wounds, one of the many dangers of posting in a hurry. Aplogies, and I will be more careful. Thanks to Petrosian for the correction!
yet, surely NPCs make this item as well. (or are the PCs the only ones allowed to have one? Exclusive to PCs?) if so it should appear now and again in treasures?
An NPC could certainly make this item, but we tend to leave original item creation to the charcters. It is more fun for the players and creates the feel that the character is special. These are the kinds of items that get names and build up histories. NPC's that have original/unique items tend to have them because they are included in the adventure we are running. There are several "unique" magic items in RTTToEE that NPC's have that players do not. That said, players know that any type of item they have is fair game for an NPC to use or vice versa.
On comabt use versus post-combat use:
Our experience has been that the Headband of Moradin's Mercy has little combat value. Our group rarely uses it is combat, forseveralreasons.
1) As the characters advance in level, that 1d8+1 really isn't all that helpful, compared to the amounts of damage being inflicted. By 10th level, you had better be using some higher level curing spells.
Hint: If you are relying are CLW when facing enemies that can throw dispel magic you are in big trouble.
2) It is easy to use a dispel magic on the headband. While this rarely comes up, it has been used to suppress the Headband. It was in a close fight and enough to tip the fight in the villain's favor. This occurred when the players first created the item and relied on it to much. Now they know there is a reason caster level is important.

3) Villains are not stupid. If they notice an inordinate amount of healing occuring, they can incapacitate the person with the headband. Tanglefoot Bags, nets, or simple grapples are highly effective at this, especially since the physically weaker characters are the ones that normally wear the Headband.
In post-combat, it hasn't made a huge difference. Sure the party can heal up quickly, but chances are they have exhausted most their spells already. They still try to retreat/fortify and recover spells before they get to the next big encounter. As the characters increase in level it is not hard to "get away" or find a safe place. especially with spellasters in the party. If the party is forced to fight before they can recover spells, then they will have more hitpoints. Without spells though the party will have a very tough time of encounters of their level, with or without the extra healing the Headband can provide.
identify is likewise useless in combat, should an unlimited identify item be cheap too?
I would let an unlimited charge identify item be created according to the formula. Of course, since it has a costly material component it won't be that cheap, even with the creation formula. The biggest issue with such an item, to me, is how quickly it works. If it still has the 8 hours time aspects, definitely not a problem. We don't encounter enough magic items to make it worthwhile though. You'd be better off with a Wand or Scrolls.
Would you EVER consider buying three CLW wands over this item? if the answer is no, its too cheap.
A question on pricing. Does the reverse also hold true? If I would never conside buying this item over three Wand of Cure Light Wounds are they to inexpensive? Or is the item to expensive? I also think that opportunity cost figures in, Do I want the Headband of Moradin's Mercy, or a Wand of Cure Light Wounds AND a Wand of Summon Monster I AND a Wand of Charm Person? Depending on the character, that is a much tougher question to answer. Wands or also available to characters with less money. Why would anyone drive a Kia instead of a BMW? You should be able to get a lot more utility and longer use out of the BMW, but many people just can't afford it while simultaneously making the house payment.
What I would change about this item:
1) Make it function as a spell trigger item, but still have it priced as a use-activated item. I don't think this is a balance issue, but more of a flavor issue.
2) I would like to have each one associated with a deity and "aligned". If you don't have the correct alignment, negative level while wearing it. It seems to fit the feel better for me.
Thanks again for the feedback. It is appreciated, even if it is not always agreed with.