Ok, I have gotten to chapter three and all the shops still have all the crappy +1 magical items, do they eventually get better ones or do you find other cities with better ones?

Only the Adventure's Mart gets a new supply of magical items very late in the game. Still, the best items are found by killing the tougher opponents.

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The last arrow of Legolas kindled in the air as it flew,
and plunged burning into the heart of a great wolf-chieftain.
All the others fled. -J.R.R. Tolkien, The Lord of the Rings

Heh.. Wait until you get to ToB. All they sell is +3 stuff. Even mercenaries have +4 weapons.

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http://www.asnsoup.com/a.jpg

Really?

Use Enchanted weapon. (all is +3)

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Principium mors est.
But when the world of the deads comes,
we will already be there.