November 4th, 2011, Blizzard announced plans for a great item squish: http://us.battle.net/wow/en/blog/3885585
It was met with a near 50:50 split between players, some saying they wanted it, others saying they didn't, with fair arguments for both. Some people against the squish said that with the item squish, soloing old content would be lost (which it likely wouldn't), others said it would make their character feel weak. And other players said that numbers are really starting to get out of hand, and it would be easier to balance if values were lower.
You can lean either way, it doesn't matter, but the way things are going currently, Blizzard will likely be bringing in the item squish for the next expansion.
Here is why I think it's coming:
Lets have a look at ilevels, 5.0 brought us an ilvl jump from level 85 DS gear 397 to level 90 normal mode 496. That's a jump of 99 item levels. Comparing this to the increase from ICC to 4.0 raids the ilvl went from 264 (in 25 mans) to 359 which is a jump of 95 points. So each expansion is bringing us approximately 100 item levels from the previous expansion. Let's leave this here and remember it for later.
Let's compare our gear in this expansion. An average ilvl for people not currently doing heroic mode is around 480-495 and for those in heroic mode they are around 500-505. BIS is 508-510 (outside of upgrades, and I won't be covering the upgrade system).
The next patch is bringing us an increase in the amount of different item levels dropping with the Thunderforged system. Patch 5.2 has 5 different tiers of ilvls, we currently have 3 (RF, Norm, HC). Item levels in 5.2 are as follows: 541 Heroic Thunderforged, 535 Heroic, 528 Normal Thunderforged, 522 Normal, 502 Raid Finder.
For heroic mode clearers, they are getting a boost of 30 item levels, normal mode clearers will see a boost of 20 item levels and raid finder clearers will see a boost of 10-20 item levels, on average from drops alone. Keeping in mind that there are purchased items at the 522 ilevel.
We've increased in power from the start of the expansion by nearly 100 ilevels already (463-541), compared to Cataclysm where we went from 346-404 (58ilvls)
We are having a huge leap this expansion between item levels for gear. If we only get one more tier in the expansion, then we'll see item levels at nearly 600 by the end of MoP if this trend continues. Gearing is currently exponential, and the next expansion would need to compensate for that, potentially bringing us into an ilevel of 700-735. I just can't see that happening, could you imagine what kind of stats would be on gear at ilvl 729?
Whether you like it or not, the great item squish is coming, so they (Blizzard) are using their final resources and pushing the limit of how large our numbers can get before it happens, they are testing the water with additional item levels before the squish us down.