How about a divining rod, it is a stick after all.
You could use it to reveal hidden pools of water through out the game. Of course these would be magical pools, so one would carry empty bottles to fill them with water. I guess you wouldn't need alchemy to do this. This magical water could bring back your health or mana, maybe even both.
You have to start off small before having something so grand as the staff of Moses. <img src="/ubbthreads/images/graemlins/biggrin.gif" alt="" />
But since the third game is going to be 3D, your idea of a magical staff is much better.
