With Diablo III, the developers looked into fixing this problem. There appeared to be one quick and easy decision on this since it was revealed at the same time as the game itself. In this new installment, each player will be getting their own loot drops that only they can see and pick up. This stops the hustle to click on items first and allow players to play the game without worrying about fighting for drops.
While the system sounds simple enough, there has been a lot of discussion and debate on the intricacies of the system. There have been debates on whether or not there was any advantage to playing multi-player or single-player to get the best gear quickest. With multi-player, each player gets their own drops but can share their loot by picking it up and dropping it back on the floor. This allows every other player to be able to see it and pick it up. With four players in one game, this essentially increases the drop rate by four. To compensate for this increase, some have mentioned the idea that single-player drops would have a better chance of dropping better gear. However, this doesn't seem to be the case. cherubdown asked Bashiok this question about the separation of gear from multi-player and single-player. At first, his response was that there was better drop rates in multi-player. However, he soon recanted this statement and corrected himself.
Official Blizzard Quote:
Diablo: @cherubdown Sorry that was an incorrect answer. Drops don't change while playing in a group vs. alone.
In addition to the fact that there is no separation between the different modes, Bashiok also added the fact that Magic Find and other attributes will effect only the person's drops who is wearing the gear with those attributes. This, again, makes it so playing in a group will not give anyone an advantage to someone not playing in a group with MF stacked between the group.
Official Blizzard Quote:
I've gotten this same question wrong in the past, I don't know why it continues to confuse me.
Drops are not different in co-op. The fact that you're killing faster (which you will) in a group means more items in less amount of time, means we don't need to provide other incentives.
Your own drop modifiers will affect your personal drops, such as magic and gold find. But that's the same while playing alone or in a group.
Special thanks to Doomscream for finding this additional news on MF.
I'm almost 100% certain that the drops don't work like that. They are random for each person, so it's completely possible that you do a boss run and not get anything that is rare or even something you'd want to not salvage. Just because one person gets one or two lucky drops, the luck isn't then somehow multiplied by 4. And yes, the bosses are supposed to scale effectively with player count, not just have some of their stats multiplied similar to Diablo 2.
As Bashiok also said, if you try to solo in a 4 player game, you should be dying very quickly. So in that way, coop may introduce less items into the economy than Diablo 2 did with it's ability for having a full game where everyone soloed all different areas of the game.