Well, there was a thread someone started about demographics of magic item shops... I don't know where it went but I copied it into my dnd folder for reference, so lemme repost it:
City Size: Highest Level Wiz/Sor; GP Limit
Thorp: 1; 25 gp
Implication:
Nothing with a value of over 25 gp will be found here. That pretty much rules out all magic items except possibly 0th-level scrolls.
Hamlet: 2; 100 gp
Implication: You may find potions of cure light wounds and a first-level scroll. Maybe. But that's it. Local hedge wizard can't even make a +1 dagger if he wants to. Heck, he can't even find a masterwork dagger to enchant. Economy might - might - be able to support one minor potion shop.
Village: 3; 150 gp
Implication: Just like a hamlet, there really isn't much to buy here. The local wizard could make a +1 dagger, but there are no MW daggers to be found (cost over 300 gp). Economy might have one minor potion shop and/or scrolls shop but no more. No MW stuff, only 1st-level potions and scrolls. Local hedge wizard can enchant a +1 weapon - but only if you import the MW weapon for him. He won't have the resources to buy one, though.
Small Town: 4; 800 gp
Implications: Town has the resources to support a couple of potion shops, including one that makes "high-powered potions." Might see a 1st-level-spell wand shop. Supports masterwork weapons, but not magic armor, shields, or even minor wondrous items (800 gp is too little). The local hedge wizard can't brew the high-level potions though; he's only level 4. So you're looking at 1st-level wands, 1st- and 2nd- level potions and scrolls, and MW items.
Large Town: 7; 3, 000 gp
Implications: Only in a large town do you even start to see much of a market for items other than potions or scrolls. You will see the occasional +1 weapon or armor and the most minor of wondrous items. Wands might have 2nd-level power. The local wizards may be able to enchant a +2 item for you, but certainly can't buy one from you. Scrolls of 4th level and below will likely be available - but from only one source. Minor potions and scrolls are likely to be plentiful - you might see three or four potion shops.
Small City: 10; 12,000 gp
Implications: You start to see 5th-level scrolls, pretty much any potion is easy to come by, and you may find +1 and +2 weapons/armor - possibly +3 armor, though that taxes the magical resources of the town. Minor wondrous items can be had here. Most wands are probably available, too. There is likely a magic trade, but due to the fact that a typical small city has only between 1 and 4 magicians over 4th level, the trade is probably small and tightly controlled.
Large City: 13; 40,000 gp
Implications: Here, folks have the magical power and money to look at +4 weapons/armor, but they're still rare. You can get your hands on scrolls of 6th and possibly 7th level. Only in large cities do you even start seeing staffs (staves?). Potions are commonplace, as are lower level scrolls - anything you can get in a large town will be easy to find here, though more powerful items will be rarer and limited to a more exclusive group of mages (again, probably less than half a dozen). Also, have you noticed that you really can't even begin to contemplate most RINGS until you're in a large city?!?
Metropolis: 18; 90,000 gp
Implications: Scrolls (any level) and potions can be had here fairly easily. Weapons and armor of all enchantments can be made, but you're unlikely to see a weapon with an effective bonus of more than +6. Only in a metropolis are wondrous items of great power even remotely close to "widely available." However, the magical power is still somewhat consolidated - anything that would be "small and tightly controlled" in a small city is easily found here - lots of 8th and 9th level mages (comparatively) but anything beyond that in power will again be controlled by a few mages - 6 to 8 on average. Considering that metropoli tend to be seats of power, you can bet that at least one of those mages is in an advisory role to the crown (or whatever), which diminishes your chance of finding such items even more.
OK... so if your dm doesn't like magic item shops (and I know I don't) have him look at this. Just last night the party I run went into a town adventure and naturally went to try to find some magic for sale. This is what was available in the town (pop. c. 1200):
Potions: Jump (1 on hand; standard; 50 gp)
Detect Magic (3 on hand, all caster level 5; cost 125 gp)
Reduce (1 on hand, caster level 5; 250 gp)
Change Self (2 on hand, caster level 5; 250 gp)
Enlarge (1 on hand, caster level 5; 250 gp)
Blur (1 on hand, standard; 300 gp)-
Detect Thoughts (2 on hand, standard; 300 gp)
Invisibility (4 on hand, standard; 300 gp)
Tongues (1 on hand, 750 gp)
Fly (1 on hand, 750 gp)
Wands: Detect Magic (2 on hand; 375 gp)
Magic Weapon (1 on hand; 750 gp)
Haste (1 on hand; 5th-level caster; 2000 gp; 4 charges)
Identify (1 on hand; asking price 7000 gp but will go down to 5800)
a few divine scrolls; typically they have:
Cure Light Wounds (six on hand; 25 gp each, 20 gp to anyone who is a follower of Crithlec; Harn’s sense motive is +4 (2 ranks, wisdom 16).
Detect Evil (one on hand; 30 gp)
Magic Weapon (two on hand; 25 gp)
Invisibility to Undead (two on hand; 25 gp)
Bless (one on hand; 25 gp)
Burial Blessing (DotF, two on hand; 200 gp)
A few of the items break the pricing rule, but as you can see, the pcs can't exactly get anything they want. (And the wand of haste was sold by the party to the potion shop guy!) They also cleaned out the local jeweler's cash reserves selling off loot (much of which they settled for a low price on).
My point is basically that a few magic shops do not equal buy anything you want anywhere you want. I find that both in the game I run and the games I play in magic items make a _HUGE_ difference in how tough some encounters are. F'rexample, flyers, oozes, golems, etc. Without magic weapons you just can't hurt a lot of stuff. Without magical protections everything can hurt you by the time you're about 6th level, and most of those hits dish out pretty good damage by then. No potions? No healing for most classes. No scrolls? Wizards may become much less powerful (depending on how hard it is to find new spells).
CR's _are_ balanced with average treasure of their level in mind (for pc magic items). Your dm is right; not all encounters are meant to be equal for all classes. (Animals v. druids/rangers or undead v. clerics/paladins are two primary examples.) But I think every character ought to have something to do. Taking away the 3e character's choice of whatever magic items he wants is a good thing (imho); but even if it's all through random generation, characters need their loot to stand up to the monsters and challenges. The main needs a character has to survive- mobility, offense, defense, etc.- are each addressed in many ways in the book. (What if a character falls into a high-DC to escape from pit, survives the fall but can't get out cuz the DC's too high and his climb is too low? Your 20th level paladin dies in a hole! Whereas a simple rope of climbing, potion of fly or countless other "mobility" solutions would have given him a chance to survive what is probably a CR3 trap.) Of course, the dm can always account for this lack, but that can lead to unrealistic adventures (the fighter attacks the trapmaster's lair but there aren't any traps that pose a significant threat).
A low-magic item presence game can work fine as long as the dm is careful to adjust CRs appropriately. F'rinstance, while a dire tiger's CR probably doesn't change, a stone golem's certainly should! How can the party hurt it without powerful magic weapons?
Just some thoughts...