Loot: Will there be a large quantity of certain powerful items? Say a "Staff of Fire"

No. As far as "spawning" high end items you'll see that with ores or perhaps for a few special situations like maybe the apples of a special magic tree would give a crop of life refreshing fruit once every season, making this fruit very valuable but the rule of thumb always for me leans to less of the high end stuff to keep its value and prevent abuse.