When dropping items are generated?

[LennyLen]

When randomly generated are premium intems at the blacksmith and witch?
When randomly generated are premium intems at the Wirt?

Town vendors change their premium items when you level up.

Is it predetermined or does it generate itself at some stage (e.g. before entering a level)?

IIRC, when you first enter a new level it generates the monsters and other sources of items such as barrels and chests, so if you've saved after entering the level you will always get the same items. It's been a long time since I thought about any of this though, so I may be wrong.