The Nihlathak reward is completely useless, pointless, and meaningless, but it gives a convenient excuse not to do the quest at all :p .

I think the ones that most need changing are the merc rewards. If you already have a merc, they do do absolutely nothing :/ . Instead, it should give you a free resurrection, or maybe ask you if you _do_ want to replace your current merc, or just make the next merc you get free.

It'd also be nice if the rings and class-specific items were useful more often, but this isn't such a problem.

I think a reward that let you keep the attributes on a magical item and add more to it would be extremely broken. After all, some affixes can only be found on magical items, and these items can then still be among the most powerful. A cruel weapon comes to mind ;) . If you could have a cruel weapon with 5 random other affixes, that would be powerful indeed.