An indirect answer: If your players want to be overpowered, they will be. If you fight them on it, it will lead only to a war that will make no one happy.
Item optimization is among the more engaging aspects of character building in 4e, and a fair number of really, really flavorful, interesting character builds only work with very specific item sets. Your players seem to enjoy it, and them knowing what they want saves you from having to sort through the multiple thousand terrible items to find decent ones to award them with.
As noted in many of the comments, 4e's math depends very heavily on every character's weapon(s) and/or implements, armor, and neck slot item being upgraded roughly every 5 levels.
On top of that, striker math more or less requires an item bonus to damage from specific weapon/implement enchants or from one of the armbands and an untyped bonus from a dragonshard, which in turn requires typed damage, which is itself most easily obtained for many builds via specific item enchants.
The difference between a naked cleric's healing word and one item-optimized for healing purposes is, at epic, 2d6+18. You may note that, at an average of 25 extra hit points gained, that's more than double the base 6d6.
There's dozens of ways you can solve the bookkeeping of allowing players to choose their own items. Wishlists are one, your current method another. A lot of DMs allow players to pick one item of level +2 upon leveling up, in addition to random, rarer item caches in the world abroad. Of those, I prefer the latter, with a fairly substantial number of the items you hand out as treasure being picked for flavor value, rather than optimization purposes.
Boots, Rings, Belts, Helmets, Gloves, Tattoos, and Alternate Rewards are less optimizable for many builds, but often have really cool effects, like walking on water, or a 1/day dominate attack, or permanent feather fall. They make fun treasure parcels, particularly if you pick something that will be useful in an upcoming challenge.
Per your concerns about the party being overpowered as a result -- that's a relatively simple thing to fix. Just increase the level of encounters you throw at them by 1 or 2, and make sure you're using updated (MM3) monster math.