I actually love this system, and am planning to incorporate it into my Legacy of Fire game (as well as future games). It will be effective from this point forward - no going back and adding to existing characters at this point.
However, I'll modify it as follows:
The bonus To Hit and Damage can not be doubled or tripled - max of +1 each. Both of these will incorporate into the magic bonus if the item is made magical (they'll 'disappear' and the bonus becomes a magic bonus).
Other properties will remain unless the magic of the item duplicates them - they won't stack with any magic properties. So if a MW item with the threat range expanded is made Keen, the MW expansion is folded into the magic.
I'll also likely make MW items exceedingly rare - it won't be enough just to have the gold to buy one. It'll be dang hard to find anyone who's capable of making one. Artisans of that caliber aren't necessarily to be found even in every major city . . . Probably be a major quest to get hold of one.
It's not perfect, and I may make further adjustments as clever players come up with cheap uber-weapons.
JAs games tend to be limited on the number of items, but he's really good about growing them with you. A potential solution would be to limit the number of Masterwork items (to, like, one per character) and have the characters have an emotional or other attachment to the item, then grow the item with the character either by adding magical properties or by adding abilities/powers in other ways. For example, the signet ring mentioned by Rhun earlier could reveal additional magical properties, or it could grant the wearer special rights and privileges (access to secret societies, the right to dispense low, middle, and high justice in any realm of the land, etc), or a combination of both, or something else I'm just not clever enough to think of right now.
