See, the problem right now is that they (the original team) did item coloring in the stupidest way possible: making each color variation of an item a whole new inventory item with a different texture on it. That's stupid because it's limited, akward, and a whole extra load of work for the dev team every time they make new items.
What Yoshi has spoken of doing for 2.0's engine, is doing it the "proper" way that any sane programmer would envisage it be done:
You have a single item, with a single texture in a single base color, probably just White. Then you give that texture a "color mask" (that goes alongside it's material mask, bump mask, transparency mask, etc etc) that sets which parts of the item texture are "colored" (i.e.: the fabric would be colored, but the metal trims and belt buckles etc wouldn't be).
Then you give every item in the game a "color ID" field that sets what color it is, set up a bunch of pre-made color values (about 16 or 32 of them) and then have the game engine itself color the item on the fly using graphics card shaders.
One texture, one item, and can be ANY color. Able to re-dye existing items without destroying/trading/recrafting them by just changing it's color ID. You'd be able to decide you dont like red anymore and dye it all yellow. Or buy it in green and change it to blue.
Observe. I did this in Photoshop simply by setting which part of the texture I'd like to be the "color", and moving the Hue slider along, which a graphics card can do on the fly for almost zero performance impact (would use less memory, in fact):

What color cobalt do you want?
Will it be like this in 2.0? Well that's what they've alluded to, and I sure hope so.