I can't see anything wrong with that at a glance, except according to October's article, $ITEMSTATE can't be set in a link script, so I suppose you can rule those out.
By setting Item #2 specifically to a number above 50 I can get that to show up in my inventory, but the same doesn't work for Item #1 when it's less than that. I'll keep messing with it but I imagine someone else who's actually good at this stuff will be able to see the issue immediately.