Well, my method for reducing magic items was to impose Sympathetic Enchantment, meaning that the spellcaster must do the actual item crafting. Not too many Wizards are skilled in the smithy, after all. By requiring that they be skilled in the manufacture of ink (scrolls & tomes), jewelry (amulets, rings, necklesses, etc.) and so forth, both the time and skill requirements reduce the amount of items that PCs make and justifies a lower amount of items being found.
Adding to the prereqs for item creation is also a reasonable method, such as +50% caster Level (Caster Level 6 becomes Caster Level 9 and so forth).
Another trick is to wait until middle levels (8th or so) before handing out magical weapons, but then give good ones (+3 to +5) as these will likely be the only ones they get. In this manner, you don't have to keep introducing "upgrades" for their weapons.
An alternative to this is leveled magic items, although I don't care for that method myself.
One issue you may have is that with magic protection being rare, magic casting characters (PC and NPC) and magic using creatures become more potent (amount depending on the individual creature or character, but it will happen). Also, lower magical weapons increases the defensive capability of Damage Reduction.
Now, exotic/potent materials is covered in Magic of Faerun. I don't have it myself, but it might be what you're looking for, or a step in that direction.
Crafting wise you may consider stackable master-work, but doing so should be kept expensive and difficult. Also, master-work doesn't overcome DR, so that's mostly a low- to mid-level solution unless you keep DR rare and low-powered.
That help at all?
