I've been doing this for a few years now. It works quite nicely in 4E as well.
A couple of notes:
If items scale with their wielder, then the cost to craft the weapon will be the cost to craft the highest level weapon of that type that character can use. Ex: A 20th level Wizard, wanting to craft a magic staff, can't make a +1 staff and have it be +4 or 5 in his hands, he must pay the cost to make a +4 or 5 weapon. (Yes, it is technically cheaper to make things at lower levels, but the 4E treasure and wealth rules, if used, mean the characters will always be expending an equivalent ammount of their resources)
The main advantage, I have seen, is that players will grow more attached to the trinkets they pick up because they know there is no longer any metagame reason to discard them. Further, a player can tell me "hey, I really would like to see my rogue/warlock with a Pact blade" and I can have it come up in a treasure pile somewhere. Further, I don't have to strain plausability by having one come up every 5 levels.
One downside: Players will want to amass magic items. They will probably, at some point, unless you create special crafting rules, want to deck out their characters fully. (My group I DM for did it around level 5 or 6) At a certain point, loot might become pretty much meaningless to them. No need to spend it to upgrade stuff; All of it will be spent on consumable items like potions, scrolls, etc. I would suggest cutting back on monitary rewards once the characters have all their equipment. Providing non-physical rewards (loyal henchmen, titles of nobility, landgrants, unique and pricesless trinkets, etc) to adventures can still keep the players interested.