I'm going to come right out and say it. I hate the D&D equipment system in general. I hate the DDO equipment system even more.
You remember that bit in Lord of the rings where Gimli is beating on Orcs with his keen greataxe but then switches to acid-spewing when the ogre showed up on account of their superior fortification? Or where Frodo traded in Sting and his mithril mail shirt for a really cool breast plate of negative level protection and vorpal shortsword?
No, because it didn't happen. People got their gear and they stayed with their gear and gave their gear cool names. Generally, that's pretty much the rule in fantasy stories.
Obviously this presents problems in D&D and DDO. Clearly, you can't have a first level character running around with an annihilating adamantine kama of superior heart-seeking one-shotting lvl 10 bosses left and right. Similarly, Davey Destructor the lvl 28 barbarian is not going to make much of an impression if he's lumbered with a flame-touched dagger.
My solution would be weapons that improve with character level.
This can either work intrinsically: You're 8th level, you know know enough about sword-wielding to unlock the keen-ness ability on your sword.
Or it can work via augments: they already do work this way in a sense but are limited by the quality of the item itself. Not much point adding a lvl 16 augment to a level 2 item. Something you could do is have more augment slots become available as the user goes up in level.
Or it could be a combination of both: more inherent powers and more and larger augment slots become available as the user gains levels.
In this case acquiring items would, for the most part, occur at relatively low levels and instead of farming particular named items, you would be farming named augments with multiple effects and which combine to give set bonuses etc.
This is a very different system from that in operation at the moment, and would obviously have a very different feel. I'm not suggesting Turbine should junk what they have and immediately go to this. This is entirely speculation.
While I'm on the subject, having introduced augments the idea of having named items that are random agglomerations of nominally useful but practically useless abilities defeats the WHOLE purpose. How many people have farmed the seal of Dun'Robar only for it to drop in a junk configuration, +10 vertigo, +10 shatter, blah blah blah...? If you, the devs, can't decide what goes in those slots then leave them blank and let me pick the combination of augments I want. Ok, maybe make me farm the really nifty augments but at least don't saddle me with a WORTHLESS piece of junk in the meantime. Literally, you cannot give them away.