I've played for both types of GM's and I try to find the line to walk when I GM. It's not that fine of a line really, but I do have to balance.
On the one side of the coin, the generous GM awarded my PC a level 50 Battle-axe of Armour Slaying (C&T1 I believe) in my first campaign ever playing RM2. All armour must make RR vs. lvl 50 or be destroyed. All subsequent hits were vs. AT 1 since they no longer had armour. If they had a shield, the shield was affected first, then the armour, then AT 1. Given that all of our PC's started at level 5, it was essentially handing an level 1 player a level 50 weapon. We raided a heavily defended fortification and the Lord was a high level NPC with a large weapon cache. The reward was fitting of the risk, but the GM admitted to "... just love the weapon. It looked awesome." Another PC received a Battle Totem that negated all rounds of stun, another fantastic item! My PC went through slaughtering NPC's from that point on. That came back to haunt him (and the other GMs) in all following sessions though. The GMs ended up hating my PC and tried to find other treasures to coax me away from using the Battle-axe. Combat scenarios were tailored directly against my PC; close quarter combat, restricted area combat, "honorable combat with board and sword", ranged combat where I needed to use a shield to live, multiple foes to make parrying nigh impossible for me, etc.
On the other side of the coin, the less-than-generous GM would send us through wonderfully crafted campaigns, great and colourful sessions and "... everyone gets 5000xp and 300 Gold." Ummmm... what?
Session after session of mundane treasure, everyone gets the same amount of XP and gold? It came to the point where we didn't care what we did, we knew we were all getting the same flat level reward.
Every permanent magic item in my game is significant to the story and they are rare. I do encourage players to make the best use of their spells though and this encourages people to reuse rune paper and to create potions or use symbol ways to create enchantment.
I like to do this as well. I look at what my players have as equipment, their credo, or the backstory is. I try to think up items that would be really cool for their PC. If one player has Falchion or Scimitar, I make the bad guy have a really nice, magical Scimitar. If the PC has non-magical armour, I'll make sure that another challenging battle will have the baddie wearing magical armour of the same or better AT. For a grand campaign, I make sure there is something worthwhile for each PC that would make them happy they chose to go on the adventure. I try to keep the level within 5 levels of the PC. Unlike a level 5 PC with a level 50 weapon. Don't get me wrong... I LOVE LOVE LOVE the Battle-axe, but I've started to choose other weapons from my arsenal just to make the game more fun for other players and a little easier for the GM. The really good magical items +15 or more, are very rare to find, PP Multipliers even more so. I try to look at what future campaigns will be like and how the balance can be thrown off for me or other GMs. The fun for me as a player really started to wane when the GM's were announcing that they had to work the campaigns against my PC "... because of that damned axe!" You think the gods are against you? Try having the GMs against you!
I use random treasure as a rule. If I give an item to a player its always necessary for or tied to the story.
I also make moderate use of this as well. I believe C&T I + II have the random treasure charts. I'll roll on these charts when I'm designing the campaign and I get ideas from the items that roll up. I'll look at the players and tweak the item as needed. If I roll for a Level 2 Essence item, but all of the players are Channeling or Mentalism, I'll switch the realm. Or, if I can think of a good situation where they can trade that item off as a bargaining chip, I'll leave it as is. If I roll +10 AT 20, but I know all of my players are leather and chain, I'll make it a chain item. I'll also use that random treasure chart for the minor skirmishes that occur during normal course of gameplay.