(I still don't want to hear about elven wizard/paladins. But on to the thread...)
The OP is one of those posts where I suspect that a specific incident is really underlying the issue, and that it has been over-generalized. Is there any point in responding with ideas about how to run a mystery game if this is really about encounters/day?
The encounters/day thing, you would think, works like this - if 1 monster is too weak for the party, and 8 are too strong, then something in the middle is just right. It doesn't matter how much equipment PCs have - give a bunch of 1st level characters +5 weapons and it's still true. It's just basic math (or maybe advanced math, depending on how rigorous you want to be about continuity).
So I guess you're talking about everybody getting equal "time to shine" - so that supposedly a character who gets d4s for hitpoints (the psion) is dominating during combat while the fighter (d10s) is not. Is the psion hiding behind the fighter the whole time in combat? Is everybody 16th level? I would think that a character with d4s for hitpoints would be pretty vulnerable at earlier levels. I don't know anything about psions other than what I read in the SRD.
Somehow, I guess, taking four encounters that would be spread out throughout the day, and smooshing them into one big encounter is an advantage for the psion? I would put my money on the guy with the d10 hitpoints because the d4 guy is going to need healing. Plus there are situations, especially in the wilderness, where traps, scouts, skirmishers, etc. would lead off an encounter - it's such a wide-open subject that I can't see how you can argue for any one "reality" in DnD. And 4 encounters is hardly a "crawl".
Regarding the "they don't care about +1 swords with names and histories" thing. Well, nobody does. That's why Excalibur isn't a +1 sword. Merlin didn't say "hey Arthur, throw away your current sword. I know of a sword that, while clearly inferior to your current sword and any of those owned by your knights, has jewels and a long history and is fit for the thespian-king of England!" That's common sense - the best magic items are the most powerful ones. I don't know what kind of game, that implements the concept of power in any realistic sense, would have things any different. Fiction and legend supports the munchkin in this. Every warrior in history and legend was a munchkin - that's why they wear armor - and they'd wear it even if it weren't shining.
And also, with respects to the magic store, you can't expect players to take a +4 cloak with jewels seriously if you're selling +6 cloaks with no names out of the back of a van. Related to the last point, the named items should be among the best of available items. Unrestricted availability of magic items (ie. the magic store) of any power is going to undermine the "specialness" of all magic items. I don't see anywhere in the rules where having a "magic Walmart" is mandated. My advice is to use the DM veto power, IMO it's not hard.