The worst loot design I've seen is probably Dragon Age 2. I've been whining about it on my blog lately, but to sum up - painfully nondescript items that you have to keep cycling all the time plus 2/3 of all armor in the game being unwearable by any character. That on top of the typical Bioware annoyances of having junk in barrels all over the place and insufficient reward for rogues who pick locks because that might be 'unbalanced'.
I much preferred Diablo loot. The silly names for items made it clear at a glance what they did, and there were enough options that you had to make choices and tradeoffs for what you thought was important to your playstyle, or keep hunting and hope that eventually the weapon with the perfect set of bonuses would be randomly created. It scratched the obsessive shiny-collecting itch.
But really it doesn't take much looking to find a game that handled loot better than DA2!