Do craft numbers and hat levels affect the cost of the item

Most items have a set number -- before the Scout update introduced the Sandman, no item went higher than level 10.

About the time of the Spy / Sniper update, there was a glitch in the random drop system, and normal weapons (that usually have a fixed level number) were generated with a random level between one and one hundred. This has since been fixed, so if you see, to use one of my own items for example, a level 56 Dead Ringer, that means the item is very old. (And now with the latest patch, you'll never see a non-vintage oddly leveled item)

On the other hand, hats will always have a random level. This means nothing, but certain levels are certainly more valuable for trading, for pure sentimental value. (1, 100, 69, 42, etc.)

The singular exception to all of the above is the new Dueling Badge medal misc item, which actually "levels up" as you kill folks during your duels. A level 100 dueling badge works out to 1000 kills (Might be off a factor of ten) during duels, and likewise the rarity of the badge itself (bronze, silver, gold, platinum) is based on level increment. 0-25,26-50,51-75,76-99,100, etc.

In no case does the level of an item have any effect on gameplay.

As far as I'm aware there is a certain chance you will get a drop at any given time and then a percentage chance what that drop will be, so every time you get a drop there would be say a 0.5% chance it would be a hat (for example not actual figures). I'm pretty sure thats how it used to work but things could have changed since the free update.

So as far as I'm aware when you get a drop its either a hat or an item so as such they do technically conflict