The polymorph rules tell you what happens to your items
I think items would fall under the sames rules as druid wild shape
As blackbloodtroll keeps subtly trying to inform you, OP, the Rules thread isn't the proper location for character building advice.
That said, here are some thoughts:
1) Your size doesn't matter for precision damage. This is why small creatures tend to be rogues before fighters / barbarians. Sneak attack damage hurts a Small creature just as much as it hurts a Gargantuan creature. For this reason, picking up levels of rogue might not be a bad idea.
2) I am not crazy about this product's flavor, but Super Genius Games released a product called Races Revised: The Kitsune Clans some time ago. There is a barbarian archetype is quite literally exactly what you want; shapechanging into an awesome Large fox-monster. I wrote an in-depth review on this product on the page I linked to you, so give it a read if you are interested. I will say that I would have paid $5 for that one archetype alone, it was so wonderfully flavored and written.
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You can make it work.
I suggest creating a thread in the Advice Forum here.
Make what work exactly? Being tiny only really works if your a rogue and then you would only get one attack until 8 and you can't use boots of speed. You would also have -4 strength. Being large would work fine with barbarian, but you can't do that unless i am wrong??
Fox Shape specifically says that it functions as beast shape II.
This spell functions as beast shape I, except that it also allows you to assume the form of a Tiny or Large creature of the animal type. If the form you assume has any of the following abilities, you gain the listed ability: climb 60 feet, fly 60 feet (good maneuverability), swim 60 feet, darkvision 60 feet, low-light vision, scent, grab, pounce, and trip.
Tiny animal: If the form you take is that of a Tiny animal, you gain a +4 size bonus to your Dexterity, a -2 penalty to your Strength, and a +1 natural armor bonus.
Large animal: If the form you take is that of a Large animal, you gain a +4 size bonus to your Strength, a -2 penalty to your Dexterity, and a +4 natural armor bonus.
So as for your rules questions, the answer is "yes" to some parts and "no" to other parts.
Is is legal to make a Kit Barb with the Fox Shape feat and stay as a large fox and kill things using barbarian rage power beast totem?
No. When using Fox Shape, you have to take the form of a fox. Foxes are Tiny creatures, which means you would receive a +4 bonus to your Dexterity, a –2 penalty to your Strength, and a +1 natural armor bonus.
This way you can get good strength, bite, and 2 claws?
While raging, your Strength would effectively remain unchanged. You would take a –2 penalty for being Tiny but would gain +2 for raging. Kitsune aren't known for their Strength, so you would be throwing a lot of ability points into Strength to make this build work.
That said, you would possess a bite attack and two claw attacks while raging in Fox Form.
Would items equipped still help you?
Official Ruling!
Unless the new form is humanoid, all gear merges into the form. Constant bonuses (except AC) remain. Activation items can't be activated. Material components are not accessible while merged into the form.
This means that anything (except armor) that is constant would continue to benefit you. Examples: cloak of resistance, belt of giant's strength, so on and so forth. Items that need to be activated cannot be used.
urban barbarian Amulet of mighty fists -agile. Seems like this would work to me.