I think a low magic and low power setting is a good idea. I use that kind of homebrew campaign, and I notice a lot of other people do, too.
The (potential) magic doens't even have to be that low as long as the status quo NPC level of the setting is relativly low. I notice a lot of people like Ebberon's low-level npc demographics, that kind of logic applied more comprehensivly would be a great idea.
Of course, there's nothing stopping the PC's from becoming high level in such a setting, and there can still be powerful threats- but they would be rare and world-shaking, rather than run-of-the-mill as is too often the case in the FR. High power and even mid-level PC's should be the movers and shakers of the setting, but relativly low-level NPC's could also operate as nobility and the like.
As noted, making magic and power more rare would only make it more impressive- and I don't think D&D3.x is as reliant on magical items as many would claim(especially since such a campaign could have varant rules to help redress such a minor imbalance).