No you are able to create your own armors, weapons or potions, but to do that you need to collect resources.
-Random generated resources (iron, gold, mithril), in cave.
-Table where you are able to create own stuff (armors, potions, etc.), in village.
-random generated chest with random generated items inside, rest of the world.
-You can chop trees.
In installation directory you can find file HOW TO CREATE ITEMS.TXT
You can play on saves from 1.02 version.