...would you suggest anything I should be aware of or anything you've noticed from making items?
The technical end of making items is pretty straightforward. If you happen to edit the XML directly, the names of things like traits have to be exact. Even a change in capitalization will cause it not to work. Also, the game already has some items with different possible effects. They're basically just different versions with the same name in the items file. Unfortunately, they don't actually work. When you save the game, the XML save file just includes the item name. It has nothing to indicate the different versions. When it's loaded again, the game searches through the items list and matches it to the first entry it finds.
The most difficult part was balancing items and writing good descriptions. The descriptions can only be about 12 lines (in the very small box in the editor). Otherwise they'll start running off the page in the actual game. Keep in mind that 12 lines has to include the list of effects. The descriptions are probably as important as anything, since that's the kind of thing that makes the game more than just a bunch of stats and mechanics. A couple of the items I've made were more for "fluff" and adding to the feel of the game, rather than affecting gameplay.
As for balancing, it's nice to be able to throw some powerful effect on an item, but there obviously needs to be something to offset it. There's always adding negative effects, but you also can use both the rarity and cost of the items. I prefer to go in that order, since money eventually becomes less and less of a problem. If I want to make a really powerful items, I just make it "catacombs only," since that makes it kind of a rare and special reward. Finally, don't forget to consider how an item will interact with other items in the game. If one item can add to the effects of another, or stop it's negative effects, the combination may end up being way too powerful.
I generally dislike everything that limits possibilities. Girls being able to get a lot of traits shouldn't be a problem... Also is there an ending planned in with the mod? If not why are overpowered girls a problem at all?
Also ability to pump up your favorite girls t the max of everything fast is a fairly important part of the game experience.
I wouldn't disagree with the idea of girls becoming really powerful. Bur as it stands, you can just selectively buy ones with good attributes and traits and then equip them with the right items. They start out immensely powerful, and there isn't much reason to ever interact with them again. It makes the game focus mostly on setting up new girls and acquiring the right items. It's important not to make the player keep doing a bunch of boring management over time, but earning new traits and skills could make the player feel like they're being rewarded.
With no level caps, girls would end up being at least as powerful as they are now. It would also be exceptionally great if the player got to make some choices about how they progressed, since that's going to be a lot more fun than it happening automatically. However, as I've already mentioned, I don't know how feasible that would be. At minimum, it would probably require a complete rewrite of the leveling functions, along with adding something to the interface to make it happen.