The Economy of WoW

[MongoJerry]

But it does not solve the problem of high level players income being 10x higher than low level players, giving them the ability to easily make more money on a whim to buy low level gear for new characters at inflated prices.

I don't see how this is a problem. First, a high level buying equipment for new characters is an uncommon enough event that it's not likely that such purchases will really affect the low end economy. It'll just be a blip on the screen. Second, even if low end equipment prices were consistently inflated this way, this gives low level players a fabulous opportunity to participate in the inflated economy by selling the low-end equipment they find. Thus, they will be able to purchase those items you mention or at least be able to buy their mounts and spells that much easier and faster. Finally, I again need to emiphasize that the auction house is merely a market for second-tier goods. The best goods in the game for most levels are bind-on-pickup items that drop off bosses or are quest rewards. In months of beta and retail play, I've only ever bought one piece of equipment of the auction house -- a bow back when hunters had only been recently added and when high level bows and guns were very rare and were almost never quest rewards.