I have seen many different ways to handle this, ranging from the strict book interpretation to a plethora of house rules. The one common thread that I have seen is:
Control Freak DMs prefer the strict PHB rules and Fly-By-The-Seat-Of-Your-Pants DMs prefer to house rule.
The first type of DM has oodles of notes on everything in he campaign world, including magic items. This type of DM does not let the players know anything about their magic items except by the strict definition of the Identify and AD spells. This type of DM is authoritarian when it comes to metagaming, and doesn't let the players ever have the chance to fully know the properties of their magic items (unless the PCs create the items). Cursed items are a real pain for the players and the game bogs down during combats due to the DM fiddling with notes.
The other type of DM does not want to be bothered keeping track of the loot for the players. This DM shares the responsibility with the players because the sheer amount of work required. Cursed items never actually represent a danger, but combats never drag because the players all know what their stuff does. Metagaming is more of a problem, however, because magic items tend to be straight out of the DMG.
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All in all, I prefer the second style of playing because I like it when players help out with DMing and take charge of their characters and the gaming world in general. My gaming group is comprised of adults, who are fully capable of separating in-game knowledge from player knowledge.
Identify, as written, bogs down the game (especially at mid-levels), and is too much work for too little benefit. Of course, YMMV...
