Herin are a number of ways your magic item might come into being, apart from something you order from your local wizard.
A standard roleplaying environment: the tavern. This is another easy one to create in your own home, providing you have a large enough group of roleplaying friends. Let us assume your PC group is no larger than five, and that the rest of your friends can be NPCs. Let us also aim for an exceptionally seedy and unscrupulous city tavern.
In a good LARP it is desirable to separate the players out individually at some stage, because they are more suggestible and afraid when they are alone. Some form of individual challenge is probably the best way of doing this. One possible setting for this is a cave system, and it is probably one of the easiest to recreate realistically, and one of the most perfect for playing on fears of claustrophobia and darkness.
Trapped in his tomb, but alive, the God of Pain awaits his uleashing, said to be at the end of the world, he uses his only powers he can and calls to him 2 people, a man and a women to reliquish him from his prison. The man and the women, decieved by them thinking it a person trapped, go after to help the God of Pain unwittily and let him destroy the world