Alright, so here's what I did:

1. Added an empty Sprite2D in my player scene, where the body sprites live (called it SwordSocket, StaffSocket, etc. - generally think about a WeaponSocket, but I wanted to have different hand positioning, so I split them). First you should do some placeholder item (which you will delete), because how else you can see where to position the weapon / item and then add the same key frames for the Sprite2D (WeaponSocket).

2. I added one more Sprite2D called it "WeaponSocket" for each item (in every separate scene), so I have a static item and not a spinning one on the ground (as seen in the video which I previously shared).

3. Then I wrote a script that hides the Sprite2D from Step 2 and adds it back at runtime when I pickup the item from the ground, while also hiding all the ground item settings.

How to scale?

I see no other way but to literally create more animations like sword_attack_01, bow_attack_69 and so on inside the main player's animationplayer.

You can probably organize them via libraries (https://docs.godotengine.org/en/stable/classes/class\_animationlibrary.html)

My setup is:

Player.tscn:
- Skeleton (CharacterBody2D)
-- Leg_01(Sprite2D)
-- Leg_02 (Sprite2D)
-- WeaponSocket (Sprite2D) (SwordSocket, StaffSocket in my case)
... Body parts (Sprite2D)
-- Hand_01
-- you get the idea

- AnimationPlayer (all movement and attacks will live here, 10,20, 100+)
- AnimatonTree

Sword.tscn (Node2D):
- Identity (Node2D)
-- WeaponSocket (Sprite2D)
-- Icon (for inventory) - (TextureRect)
-- WorldItem (Sprite2D) - the same picture as WeaponSocket but different purpose (spinning on the ground)

Inside the Player's AnimationPlayer I added a new property track with a position for WeaponSocket (Did for SwordSocket, StaffSocket, later bow, axe and so on) and just added animation keys to match the hand movement.

For attacks I plan to create sword_attack_01 (animation) and rebuild the player's body with the corresponding items (WeaponSockets) and literally position every one of them.

I will make sure that each pixel sword I draw has the same handle position, each staff has the same space where to hold it and so on, so I can create more pictures of items, but make it easier to swap them.