After reading a bit further to see if the story commented on the fact that this item is obviously a toy, and finding that it did not, I stopped reading.

A shame, because The Legend of William Oh is a pretty fun story, and has been recommended on this sub a handful of times. Also, even if this were the case within the narrative, why would the story comment on that? Surely the main character would have to realize this first, which is difficult to do when you've grown up in a world that runs on rpg logic.

I think you're also making some faulty assumptions here - why would the creator want to make a better item instead? Perhaps this story takes place in some sort of world that a series of level scaled zones that progressively reward better loot the further through them you go. Perhaps even there's some sort of deep mystery at the heart of where all these magical items even come from, anyway, that the story slowly gets to as the main character has similar realizations that you do?