Originally Posted by Slipperychicken
When your entire job description is "trudge through caves and stab big scary monsters", the +1 sword is a) an essential tool of the trade, and b) one of the few things keeping you from being monster-chow.
Especially when some monsters resist mundane weapons.
Originally Posted by nedz
This is an ideal setting for implementing Magic is Special.
In other words they only have a few items, but they are all very powerful, albeit quirky. They will have rescued some stuff which is of little use to them however.
I agree. I would aim at diminishing the number of magic items, but making them more powerful.
Now I'm not 100% sure what your question truly is: do you want to know how to keep the game playable without magic items, or how to give them magic items. Maybe clearing that up would help us help you.
Personally, I would do one of two things: either (a) use Weapons of Legacy, i.e. magic items that become more powerful as you gain level, although you have to do certain rituals at some point so you become more in sync with the item (plot hooks); or (b) give them the bonuses as is, to their person rather than as magic items: either make a skill tree a la video game RPG, based on acceptable gear at each level, or just straight out give them extra bonuses when they level (e.g. at level 3, you would get +1 armor, so you get a magical +1 to AC).