It isn't that easy, as changing the level of an item won't change its stats; those are only generated once, when the item is dropped.
You're right, that makes sense. I guess the only way to level up an item is through an ingame recipe then.
Changing the level of the item can be useful:
- Ruby bonuses depend on level
- Sarongs at level 7 seem to have no prereqs, whereas those at level 10 require 7 int. So a level 7 sarong with a Ruby enchant is good for non-mage types