>>290559759
You pretty much nailed what I'm doing actually. About 75% done my first dungeon, and yeah I ran into the "you want loot in an RPG but also you want physics and loot/stats + physics don't combine well" issue.
It's not satisfying to have a crappy weapon that does low damage when you swing hard.

Number 2 allows me to bypass this by controlling the users loot - I can make it more zelda like rather than run into the crafting but all items suck issue like you said.

I did find an okay compromise of making items do damage based on physics strength, but then also range that with a modifier based on the item type and quality. So a sword will do more damage when swung than a chair, but you can use both. And a better sword will do more damage

But I think controlling the users items more rather than letting them craft tons of shit will be more fun. I can do cool stuff, and have upgrades and enchantments and still new items that are better.