Well I can't say more on that topic without grossly misrepresenting Djinn! Hope that wasn't too far off centre as is Djinn.
Calling the weapon upgrade system actual Item Creation is a bit generous. It doesn't exactly create any new distinct items such as upgrade existing items on a linear path. It is more like an alternate form of progression. Abstract it out and it functions similar to the Crystarium right?
You have distinct paths that you get points from beating enemies (item drops in this case being an extra step in the way and having the option to spend money on it, which you get largely from beating enemies also), the more points you put into it the more stats you get and you upgrade your unique skills that each item gives. It follows a lot of the same basic principles and serves the exact same purpose and has similar functions (but smaller scale for skills obviously). There is just this system of multipliers being ramped up for feeding shit Mechanical objects and organic objects giving high experience sort of kludging up the system with multiplier resetting the more experience you feed things (which is not reduced as you input items, but after you have fed it entire piles of an item). Then there is the not being able to know what will upgrade the weapon, branching upgrade paths that you can't see the impacts of and the intedeterminable experience caps when it is optimal to be feeding items pretty much all the experience they need to level cap at once (which can lead to wasted items).
I don't consider it suprising that it wouldn't actively piss you off, it is optional and the game in general is pretty much designed with weapon levels to honestly be gravy. If you had to use it? I think you would have a different reaction. It is a FAQbait system that punishes players for ineffective use of their experience items (or disproportionately rewards you for being abusive I suppose? Either is a good sign of a system I consider poorly designed). That it is optional shouldn't save it from observation though.
Applying the experience scaling back curve on an item by item basis instead of just in big exp piles would go a long way to flattening the benefit regardless of how the player interacts with it. Now i don't know if this is how it works currently or not, but if the Organic items scale back the multiplier based on experience given by the item rather than quantity of items being converted into experience that would make all organic items of roughly equivalent value. That goes a huuuuuuge way to fixing this system which as is has a huge pile of items for it that are pretty close to useless. It doesn't got towards fixing the Mechanical items which have all kinds of really expensive ones that give you like 5x multiplier straight away and are completely worthless because the cheapest one can be used to get a higher multiplier than that more easilly and be bought for far less than the money gained for selling those gives. So there is a whole class of item in this system that is effectively worthless. I have no idea how to fix this honestly.
Does the problems with that system sound familiar? It is kind of like that weird point that games like Suikoden get at end game with double Experience runes and low level characters getting way past the intended point in the experience curve because of the experience gain being multiplied for the starting level instead of tapering back as they level up. Except unlike that weird point that only really creeps up at end game if you want to totally game the system. Except here it is the entire system. All of the time.
As an aside just out of interest, what level weapons did the Elves and Ciatos end the game at roughly if you don't mind?