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Does the monster level or the dungeon level influence the chance that the monsters I kill are dropping good items?

From Diablo 2 I'm used to the fact that roughly the higher the dungeon levels and monster levels, the higher the chance that good items are dropped. Is there something similar in Torchlight? And if yes, what is the best area to find high level items?

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Higher level monsters drop equipment of higher level (stricter requirements, different items e.g. leather eventually becomes heavy leather, buckled armor is replaced by spiked armor, etc.) and higher level monsters are found further down the dungeon.

Unlike Diablo II, there's really only the main dungeon (until you beat the game). So if you want the best drops, simply delve deeper!

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I disagree with "there's really only the main dungeon" as far as items are concerned, at least in the early to mid game. I've found the most Unique items and valuable Ember in sidequest dungeons (Hatch's portal and Vasman's Mysterious Maps). –  jSepia Feb 7 '13 at 15:12

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