Here is a variant of the rules I have used for my last couple of 3.5 campaigns. It allows people to use emotionally vested items ("my grandfather's sword", "my mother's holy symbol") throughout the game, instead of having to chuck it because the next level of item came in the hoard. My players have absolutely loved it.
Magic items -
There are few powerful magic items to be found. Arms and armor are rarely found above +2, with a good selection of utility magic items still being found (Cloak of Resistance, etc).
However, a character has the option of soul-binding any high quality item he owns.
This makes the item able to receive "drained" magic in a ritual. A soul-bound item
only functions at its highest level for the person it is attuned to. If that person
dies, the item loses its power as the connection is severed.
Some items (or people) are so famous/infamous or renowned that their items become
something greater. These items become fabled items, growing dormant, but not losing
their power over time. In addition to rituals, certain actions or knowledge are
required to awaken the dormant powers. These items are so potent that no person may
be attuned to more than one at any point, but since it is nearly unheard of for a
person to own more than one it is usually not tried.
Draining/Instilling Magic Items -
Any non-fabled/soul-bound magic item is able to be stripped of its magic in a ritual.
Doing so drains all power from the item, making it a masterwork, but non-magical, item.
A soul-bound item is able to receive this drained power and acquire new powers and
abilities. The owner must participate in both the draining and instilling rituals,
which must take place immediately following each other.
Optional Guide for Instilling
Every "plus" or ability of an item releases one magica (a discrete quantity of magic).
Soul-binding requires one magica that does not add to plusses.The amount of magica
that must be instilled to an item to raise its power level is equal to the square
of the effective plus (a +1 or equivalent enchantment requires 1 magica, a +2
requires 4 magica). Magica can be stored in an item w/o increasing its
effective plus. This means an item could have 3 magica stored and only needs one
additional magica to gain a second effective plus.