I assume that Heroes and Champions default gear will be at least masterwork quality. Making masterwork items for base units could perhaps be possible with just an increase in cost/time to produce.
I hope that there are lairs, dungeons, etc. in the world not a part of the warring factions for us to discover, explore, and loot.
I assume that (non-faction aligned) Dragons could make an appearance in the game. As such it would be nice if defeating one gave scales allowing the player to make Dragonhide armor.
I would hope that Adamantine, Cold Iron, and Mithril were rare resources discoverable on the map (like resources in Civ). Having one of your mines suddenly find a vein could be a random event as well as having one you have become depleted.
Darkwood could likewise be a rare resource found on forest tiles and perhaps there could even be a powerful Druid/Nature spell that creates it.
Alchemical Silver could require silver (I assume there is already gold and silver in the game?) although if no creatures in the game have damage reduction/silver (no lycanthropes for example) then you can probably skip this as it actually weakens weapons against everything else.
Once you have a masterwork item (from loot, came with hero/champion, paid extra to make, etc.) you can enchant it because perhaps all player/wizards are assumed to have the Craft Magic Arms and Armors feat. To make basic magic weapons/armor (+1, +2, etc.) you just pay the appropriate money and you're done.
To balance this somewhat perhaps instead of limiting the + by caster level limit who can use it instead. In D20 the person creating the item has to have a caster level of 3x the bonus. So instead you say that you must be 3x the bonus to use the item. Since base units are capped at level 5 this means level 1 and 2 units can't use magic armor or weapons at all while level 3-5 can use +1 if you want to pay to equip them. (I'd say doing so should also pose the risk of allowing the victor to acquire them should they fall in battle)
If heroes come in at level 6 and go up to 15 then they can +2 items from the start but must gain levels to use stronger magic items up to the max +5 at their level cap.
Likewise if Champions come in at around level 11 and go to 20 they'd be able to use +3 from the start, +4 as soon as they level once, and then +5 on 15-20.
The fun comes when you add special abilities. Special abilities would require you have the necessary spell(s) (assuming they are in game) and would require you spend the appropriate amount of mana to cast them all. If this is more mana then you have in a turn it could simply take multiple turns to finish creating the item (leaving you no mana during those turns for anything else). Once you begin you should not be able to stop until the item is complete without destroying all the components and having to start over from scratch.
Example: A Holy Avenger requires a Cold Iron Longsword (that you found, or made if you have access to cold iron) and a blacksmith shop in the capital. The creating wizard must be good (if you have alignment), must have the spell holy aura in their spellbook, and must pay 60,630gp. When in non-Paladin's hands it acts as a +2 weapon and so it's not usable by any base units (they top out at +1) but is usable by Heroes and Champions. In the hands of level 18+ level paladin (the Caster level for this item is 18) it become +5 with all it's speical properties. (Note this means a level 6-17 Paladin could use the weapon but it would function as a +2 cold iron weapon just like it does for non-Paladins)
---------- Post added at 04:07 PM ---------- Previous post was at 03:51 PM ----------
Another quick Example:
To make a +3 Longsword of Wounding:
Masterwork Longsword + "Mage Sword" in spell book + mana cost to cast said spell + 50k gold (+3 from bonus +2 from Wounding)
The resulting weapon would be usable by level 10 Hero/Champions and above. (while a +3 sword is usable by lvl 9 the CL for Wounding is 10 and you take the higher of the two)