How structured is your data? If it's just name/value pairs, then you can use a URLVariables style thing.

XML is fine. The verbosity only comes into play when writing it and when transmitting it. If you compile it as an asset in the swf, then it'll get zipped along with everything else and it won't unduly add to the size of the swf. Writing it can be annoying, but there are several editors that help with that. Take some time and work out your entire structure, use small but unambiguous node names for convenience.

The other, less verbose, alternative is JSON. As3corelib has a JSON decoder. And if you ever decide to serve new data from a server, it would be very easy for the server to generate either JSON or XML.

Since you are planning on compiling everything in and having a fairly small number of items, you could create classes for each. Be sure to take advantage of Interfaces and inheritance. You'll need classes for items anyway, but if you're loading separate data, you'd have something like Sword which is parameterizable, rather than BastardSword with everything built in. Either way, you'd want a Sword class which implements all the Sword specific logic. You'll probably want a Weapon class too, etc.