Check out http://diablo2.diablowiki.net/Item_Generation_Tutorial for a slightly more complex system that IMO is a lot more flexible and can give some truly astronomical drop rates on exceptionally rare items (i.e. Zod runes, Tyrael's Might sacred armor).

The trick D2 uses is using a table similar to this:

    TreasureClass    Item1    Prob1    Item2    Prob2    Item3    Prob3    ...
    runes23          zod      1        runes22  5000
    runes22          cham     1        runes21  5000
    runes21          jah      1        ber      1        runes20  5000
    ...

As you can see, some of the items are actually TreasureClasses, which have their own entries. Whenever the item picker lands on a TreasureClass, it drops to the corresponding table row and "rolls the dice" again, so to speak. This is repeated until the item picker lands on an actual item.

If you look at TreasureClassEx.txt from Diablo II, you'll see that they further use this system to calculate nodrop rates, item generation per act/per difficulty, etc. Pretty cool once you wrap your head around it!