I do like a lot of the ideas here; I think it would be a big shame if we lost the drop element to make them craftable though.

I also like Echo's idea of monsters dropping crystals or other items which can be combined to make greater items. However, it's important that we scale the drop with the monster... For instance, if all monsters dropped the same crystals it would eventually be possible to save up enough crystals for a +9 weapon by farming lesser monsters.

My suggestion is to combine all the ideas so far, as follows:

-----

Monsters, instead of dropping a magical weapon, would actually drop a magical essence. For example, an Essence of Force +5 or an Essence of Power +7.

In addition, monsters can also drop an Elemental Shard. For example, an Elemental Shard of Lightning.

These would all scale with the strength of the monster. For instance, a Wyrm could drop an Essence of Power +9 or an Elemental Shard of Greater Fire.

These items could then be fused with a standard weapon to unlock their power. For instance:

Regular Bow plus Essence of Force +5 plus Elemental Shard of Greater Fire =

Bow of Force of Greater Fire (for example)

That way, players can use these rare drops to make a truly custom weapon to their tastes.

-----

Where smiths would perhaps come in, is not to craft replacements for magical weapons but to create 'husks' that would improve the capabilities of Essences / Elemental Shards that are used.

For instance:

Rose Weapon
Improves Essence Level +1 (eg makes a Power +7 weapon Vanquishing +9)

Black Rock
Improves Elemental Level +1 (eg makes a Fire weapon essence Greater Fire)

-----

So, if you used a Blackrock Longsword plus an Essence of Power +9 plus an Elemental Essence of Lightning

you would make

Blackrock Longsword of Vanquishing of Greater Lightning