Ye Olde Inn

I came up with with an explanation on why Heroes cannot use the weapons and armor of slain monsters or what is on the Weapons Rack:

In order for Zargon to better control his minions, he placed his magic insignia on all their war gear. This branding not just enhances the gear but allows him to see though it – like The One Ring – knowing when and where the Heroes are, when the Heroes fight this minions. If a Hero tries to use this marked equipment, Zargon can weaponize it against the wearer. He will know were Mentor and the Heroes are hiding. He can, at any time, target a wearer with his Dread spells. That is, he can use Command on the Hero the middle of a Quest, or he can cast Firestorm while the Hero is trying to relax at their favorite tavern. This could even prevent the Hero from visiting the Armory and Alchemist's Shop.

So when a Hero kills a monster for the first time:

As you are picking over the bloody corpse for valuables, you suddenly hear Mentor's voice though his Far Voice spell: "While it is tempting to clam the bounty of a fallen foe, be warned that the equipment use by Zargon's horde are inscribed with his Dread mark and he will use it to harm you and spy on us. It is much too dangerous to be used!"

When a Hero finds a Weapons Rack in most Quests:

You see a rack filled with a fine assortment of weapons and shields, but they are all marked with Zargon's dreaded insignia. You can use them, but at your own risk.

What do you all think?

That's a pretty creative solution to that little problem. I've had that question brought up to me as Zargon many a time and always had to do mental gymnastics trying to explain a workaround for why the Heroes don't just loot all the slain monsters.

An easy solution is the Heroes can only carry so much. So they keep their nice, shiny weapons instead of some crude, gnarled weapons carried by monsters.

I always just defaulted to the monsters' equipment being low quality and of no real value. Also, non-magical armor really needs to be fitted to the user to be comfortable and fully effective. A trained fighter really is better off to go without armor vs poorly fitting armor that hinders his movement and wears him down.

I just call it low quality, you can use it but only roll 1 combat die. No one will buy it from you because it is so bad.