"gamers will reenter that area endlessly"
How many times would you be willing to clear the first level of the catacombs to compare the different loot acquired each time? How many times would you need to re-do the cursed Abbey to get a sword with Frost on it, etc?
"How will it decide that you need new sword"
I believe HandEFood meant that the value of what you find in a particular area would be set to a certain amount (or range), independently of what you already have. If one or two very good items were generated, the remainder of the items would be poorer quality. Alternately you could have a lot of average items. This would prevent many lucky finds / re-loads (or many crappy finds) in a particular area.
