don't think it was a level requirement, I will check next time I'm in game. But so far, it doesn't sound like this is a design feature then... we should be able to trade and use crafted items?
yup, they will say if they are BOE or BOP. They can potentially have requirements like a crafting skill or level to use, check for those (though right now any that DO have those are errors and I will be finding and removing them. I do intend to have master crafter only gear in one of the patches). Most likely issue is your friend not being high enough level to use the Upgrade.
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If, it's a level 21 required item, and he's level 19, then he won't be able to use it till he's level 21
Yup, you can even sell crafted items through the auction house in MC.