In Dungeons and Dragons, you want that magic sword. It adds to your utility–your ability to hit, and to inflict damage, even against the incorporeal and weapon-resistant. The magic weapon is a sign you’ve truly begun your heroic journey.
As a person who favors low-magic settings, that irked me to no end. So when I got to work in my own system, I dipped into the Warhammer and Dungeons and Dragons concepts of craftsman and master craft items. By allowing equipment created by experts to be more functionally useful than normal items, but still non-magic, I manage a middle ground in my campaign.
The sword forged by elves is so sharp it can shear through armor. But it is not magic. The armor forged by dwarves encumbers you less, or adds protection beyond its type–but it is not magic either. Still, these are highly desirable.
Then you can make magic equipment that does remarkable things, but may be actually less functional than these mastercraft items. Then you must decide–the sword that can burn like a torch, or the sword that can shear armor with its masterwork blade?
One thing I love about Old School Hack is that there are different flavors of weapons, but it is not a progression from terrible starting gear to awesome “I have arrived” gear; they are different tools in a toolbox, choose the one that fits your setting best.
So, to conclude, it is good to have magic items that are tools in the toolbox, instead of being stepping stones to having the most uber-epic equipment.