I don't really find the number of magic items to be unrealistic. Mid level characters can start creating things, and those items will tend to stick around for awhile. Rolling a one on certain kinds of saves might destroy an item, as would rust monster attacks and deliberate destruction. None of these things would be very likely, IMHO. Also, certain institutions might place some effort into craeting items. For example, a church might have retired priests craft blessed weapons so the current champions can defeat fiends and undead.
However, there are quite a few problems with magic items besides the quantity. First of all, why are so many useful items just sitting someplace, gathering dust? Any creature with 1/2 a brain would use obviously magic items if and could, not leave them sitting in horde.
Also, magic item creation requires a substancial investment in education, resources and life essense. Usually, the benefits out weight the rewards. However, because item creation can a drain, why would anyone create crappy magic items. It seems to me that some magic item types are so useful that anyone who could afford to would make them. For example, items such as Boots of Speed are much loved by PC adventurers, yet they don't seem to be as common in the world as their cost effectiveness and utility would indicate. Many parties with ambitious item creating might ALL have boots of speed, or striding and springing.
The lack of effects magic and other game rules seem to have on society is probably the biggest believability problem. If 4 5th level people can take out 10 times their number of 1st level people, then where's the effect on warfare? "Blah-Blah, the other other army will also have its 5th group, so they'll engage each other and leave the 1st level guys to fight it out." Complete BS. If that's the case, why doesn't the US army field children with slingshots? If the battle was equal force, then the additional force of crappy units could tip the scales, right? I don't recall Russian units in WWI composed of mostly unarmed peasants achieving much.
On many dnd worlds, there seems to be a god of truth or justice. Priests of this god would have an interest in trials, or it would be a duty for them to oversee them. They might have their powers stripped if they lied. The spells that detect falsehoods don't suffer from false positives, only false negatives, so there's almost no risk of sending the wrong person to jail/headsman, only in letting the giulty party escape. Even if you only catch people unready to counter truth magics, it's still an improvement. Finally, just as magic exists to allow some to evade the spells, some truth seekers use some counter-counter measures. Subjects could be dispelled a few times, asked to remove all items, have detect magic cast, held long enough for lingering magics to fade, etc.