This is neat: a magical "Hurtful Dagger" dropped, so I decided to try making an arrow shaft by combining it with a branch. I did NOT get an arrow shaft. The first time, I got a "Menaulion" spear, the second time I got an "Imp Spear".
EDIT: Wait, it was because it was a Dagger, not a Magical dagger. I found an ordinary dagger and got an Imp Spear as well. Looks like there's a difference when carving between dagger and knife.
Knife + branch = arrow shaft.
Dagger + branch = spear.
There is indeed a difference between daggers and knives when it comes to combinations.
Oh, and yes, most item combos require a certain crafting skill. In a future update, your hero will say either "that will never work" for combos that don't do anything ever, or "I can't do that yet" if his crafting level is not high enough. So that at least that is clear.
