I think that TreasureGroups.txt is the system that does some kind of distribution, although I don't know how it works.
But it does probably only control the amount of items in one drop set, i.e. make sure that no 5 daggers are in the set when it's 5 weapons.
(Taking into account that there are no drop sets with 5 weapons, this 'drop control' does not help very much and in my first and second playthrough, I noticed an abundance of dagger drops when I did not have a dagger user in the party.)
And Raze:
D:OS (1 and most likely 2 which I do not know yet) has so much more to offer in terms of replayability than just loot ;-)
Having experience from MMOs myself, I have to agree though that it's a very big point, too big IMO.
And finally, it's not the type of items that drop, but the boosts that can be on it which can make a Divine Weapon bad, worse than a green one ('Uncommon' ?).
And as I said, lowering the value of the possible boosts is a way to make the bad boost matter less.
The other way is to modify the boosts and boost combinations altogether which I believe the Epic Encounters mod did. But that's sooooo much work ;-)
(I still consider stuff like Master level spells on gear a wasted boost slot and I wish now I had taken the time to fully rework the whole boost system in XC_Bags ... but then it would probably still be unpublished and people would compain even more about the mod's 'misleading' name than they already did ;-)
