Don't know if you folks ever did them on Live, but the Cabilis quest lines like these (the shaman cudgel, greenmist for shadowknights, the skullcap for necros, etc) were absolutely fantastic. They were exactly like this - you progressively improved the item you started with till it became quite powerful indeed at the end.
One fun thing those had was a fairly powerful clicky effect (or proc in the case of weapons) on the final piece, and that made them all the more unique - useful beyond their stats. The necro skullcap, for example, had unlimited clicks of the level 56 lifetap over time - a very powerful click, and to my knowledge the only item at the time that had an unlimited lifetap click of any substance. (The pottery-made 4-point lifetap clicky ring doesn't count.)
The best thing about the quests is that they for the most part didn't require anything overly hard - they were just very long. So even if you weren't in a guild, you could get one if you wanted it bad enough. Everything in the 3 that I did (the 3 mentioned above) were doable with 1 group or less at the level it was appropriate to have.
If something of this nature was implemented in SoD... I'd love you guys even more.
