
Subterranean |

Seconding the new HackMaster and HackMaster Basic. Seconding it real hard.
The system itself is a joy; it's set-up to be truly challenging and exciting as you get to savor the gritty hardships that low-level characters *should* experience while they struggle to make a name for themselves - and struggle to simply survive. The default setting is the Kingdoms of Kalamar, like griffonwing said, which has been wonderfully detailed through the years since 2nd Ed AD&D. The basic idea is a relatively realistic medieval world with a fair deal of classic fantasy and magic, but far from the point in other settings where Epic-Level named characters are already having all the fun and bumping into the PCs every week. There's no magic item shop on the next corner to pawn all the crappy +1 short swords those bandits had. Like griffonwing said above, even a low power magic item is a *treasure* to be truly grateful for. HackMaster is delightfully old-school in spirit. There's a good number of very well-written adventures available, and lots of older still-relevant modules and setting sourcebooks, too, at the Kenzer site (the Hacklopedia of Beasts is a gem). My group played HackMaster Basic when it came out, and I'm excited to give the new version's Player's Handbook some serious mileage.
Also, I should second the Midnight campaign setting that Rite Publishing mentioned above. If you're looking for a low-magic-item campaign to the point that magic is tyrannically outlawed and where the evil priests who dominate the subjugated masses can home-in on your rebel PC's +1 dagger and sacrifice you to their dark god for simply having it (or even a mundane one, for that matter), then Midnight would be right up your alley. I own the whole Midnight line, and it was a truly captivating setting, if a bit of a hard sell for players who like having something of a situational upper-hand.
Good luck finding the game you're looking for! :)