I think the item creation is one of the worst things in 3.0/3.5.
I just think losing XP is too stupid of a thing. A dirty trick they used to try to balance the system, but I don't think it made it.
I often simply ban any magic item-creation from my players.
Not that cool, but so far I haven't played with anyone who would complain about that, so I haven't had so far any real reason to try better rules.
A simple thing one can do is to just not use the rules, but allow the characters to make magic items when they have specific situations that would allow it. The characters could, in order to make a nice magic sword, have to find an old, lost smith who now lives on the mountain and is the only living person who knows the arts of crafting such an item, then discover they must use an specific rare kind of metal, or put some rare gemstone in the weapon, stuff like that. It could be a whole adventure just to get them able to make themselves some weapons, and for no cost of XP.
The original rules simply ignore that kind of stuff by allowing people to just spend some money to make an item. It's like the gold pieces just evaporate and voila, the item is made (or not, you failed the check, meaning you're a retard who was hamming on the wrong side of it for days and didn't even realize it until a part of it was completely wasted).
Magic stuff could have any kind of prerequisites for someone to make it, not having to go for the stupid XP loss. some items could be only made by beings of pure good, evil, law, chaos, people with elven blood, on a specific time of the year (an equinox for example), etc. Prerequisites like that make it so much work to make an item that the players won't go wondering around making random items just to get richer/more powerful. Making a maigc item take so much effort, danger, time that they wouldn't think about making it unless they really need it. And sometimes they just wouldn't be able to make one at all.