My problem has always been that the standard rules only provide you with a few options.  You can keep carrying around the same item forever.  You can discard the item and pick up a new, better item.  You can spend the time, money, and XP to re-enchant the item (or to have someone else do it).  But there isn't really a clean way to allow an item to grow with you naturally.  For some times of items, particularly disposable items, this doesn't matter at all; they're not integral to your character, so they'll be used and discarded or used and sold off when they're no longer useful.  Usually, though, players with clear character concepts have some thing that means something to their characters.  This could be an ancestral sword; it could be a staff granted to the character in return for some great duty she performed; it could be a mysterious cloak found buried in a long-forgotten tomb the character was exploring as part of some mythic quest.  No matter what it is or why it grabs someone's attention, a good player will be reluctant to let the item go because of the character's attachment to it.

Quite a long time ago, Dragon magazine (I don't remember the issue number for sure, but this link suggests perhaps #289) had an article about leveling weapons that proposed a partial solution to this problem.  If I remember the article correct, the initial enchantment cost of the item was reduced somewhat, but the wielder had to pay in XP at each level to unlock additional features of the item.  While I liked this idea quite a bit, I felt that the rules were slightly too cumbersome to carry forward for every "key" item in every campaign.  For one thing, that's a lot of extra work for the GM, coming up with 8 to 10 "plusses" of powers for the item and listing them out in unlockable order for the player.  For another, the party's spellcasters still take the brunt of the XP punishment for enchanting items.  

In order to balance this out a little bit, I've come up with a few simplified rules that I use to streamline management of key items.  I still use a permutation of the Dragon rules for things that are very story-driven (e.g., an ancestral sword that would likely have exactly these such-and-such powers), but for other items, I offer my players a few options:

1. Simplified feats.  I've significantly cut down the number of feats a spellcaster needs to expend to be able to craft magical items.  By the base 3.5 rules, an enchanter would have to essentially spend all feats on enchantment (I know Pathfinder is more generous with feats, making this less of a problem),  In my campaigns, I generally just have 3:  craft single-use magical item, craft charged magical item, and craft permanent magical item.  This makes it much more likely the PCs will get involved with enchanting items and use that to take charge of their characters a bit more (and generally drive the story forward better).
2. Simplified enchantment..  To partially solve the problem of spellcasters being eaten alive by XP burn from creating magical items for everyone else, I allow my spellcasters to spend considerable additional time and pay the full base cost of an item to enchant it without burning XP.  In theory, this would allow PCs to run wild creating magical items, but in practice, they're very often wallet-limited.  Besides, they still can't enchant anything they're not high enough level to make.
3. Simplified re-enchantment.  In general, if you've enchanted an item, I'll allow you to spend the time and a small amount of money (but no XP!) to re-enchant it to something of exactly the same cost, for example re-charging your empty Wand of Fireballs to a Wand of Lightning Bolt.  For more powerful items, I'll allow you to spend a little extra time and only have to pay the difference (base cost and XP) to step up the enchantment (e.g., sword +1 to sword +2 is calculated as if the base cost of the second enchantment was 6,000 GP instead of 8,000 gp).  This means that an item that isn't necessarily story-critical but is comfortable to the PC can grow with the PC, provided he puts the time in!
4. Shared enchantment.  In my campaigns, non-spellcasters can assist with the enchantment process, contributing their XP instead of relying on the spellcaster for the full process.  I usually rule that the spellcaster has to throw in at least 1 XP to seed the process, and I usually tell PCs that the process of contributing XP to an enchantment is physically uncomfortable and emotionally exhausting.  This means that they (well, the ones who like to role-play) develop a stronger attachment to the items they themselves helped to create.  As a consequence, they'll usually help me weave more depth into the storyline since they have a new hook to hang more ideas off of.  This also keeps the spellcasters in the party from suffering unduly at the hands of item-hungry players.  Since the PCs require money/materials to craft and enchant items, I can still control their item load by controlling their access to funds and enchantment time; besides, everyone is hesitant to give up XP.
5. Magical materials.  I almost always allow for certain magical materials, i.e,. quest items, that count as both monetary and XP contributions when crafting a specific type of magical item.  Again, I've found this to be win-win because the players have to involve themselves to think of what materials they might need to craft what they want (or, conversely, what a certain mysterious material could do for them), and I get new hooks I can hang sidequests on.
6. Special Items.  Some items are special enough that I let them defy the cost-per-feature rules.  For example, if using the Pathfinder Mythic Adventures supplement, grant a character a mythic item that goes up in power as they gain tiers so long as they complete an additional (smaller) challenge each time to satisfy the item.  These often fall more on the larger-workload side of the equation since I like to plan out what powers these have in advance, but often they're more heavily story-oriented, so those powers fall out naturally from what the weapon is.

I feel like using these options gives the players considerably more leeway in building out their characters the way they envision them, which makes everyone happy.  It also gets them more engaged, as they either have to think about what they want/need in an item or have to puzzle out what a leveled-item/special item might do and what it requires of them to unlock the next level of power.