Not quite: When you start a new Flames of Vengeance game, you make a custom level 35 character (with many stat and skill points to distribute) that you can closely model to your previous character. Sure, you don't have your items anymore, but you start with 45.000 gold to spend on the Aleroth market, which should be more than enough to get you going again - especially if you mindread the traders so their prices drop. And in case you're worrying, whatever weapon or armour you had before, you'll find even better stuff in Flames of Vengeance.
