Yes, it's been talked about quite a bit in the past (I just finished reading Mud's excellent post on the topic), but I do have a couple of vague ideas.
First off, what magic should, ultimately, cost. This is usually the worst part of Roguelikes - in order to use some fancy-pants magic that immolates a whole bunch of evil kobolds, a portion of mental energy is expended, or some reagents get consumed, or what have you... Which is nice and convenient, but doesn't really take into account that a large area has just been made very very warm with no corresponding change in the surroundings. I'm not putting this very well, so I'll use an example.
Say a mage wants to move something (which, for the purposes of this argument, is an everyday task - it could be pretty much anything, like throwing fire at some pesky trolls, or producing a bunch of flowers from thin air, or what have you). She waves her hand, expends some 'mana', and the object is moved. Hey presto. But what about the physics involved?
It would be interesting (and kind of in-keeping with the quasi-realistic nature of the game) if Dwarf Fortress had a magic system that would push the magic-user backwards with the opposing force (I'm sure some people have heard this line of reasoning before, it's in a pretty popular series). Of course, that's just an example. My line of argument is that doing things by magic should have a semi-realistic cost associated with producing the end effect. Things cannot simply be produced out of thin air - for one thing, eventually the world would be chock-full of magic rings, amulets, swords, and floodgates. To do magic should be a somewhat difficult to nearly impossible task, depending on what the aim in mind is and just how magicified you want the world of DF to end up. Everyone may have magical abilities, for example, but doing most things physically rather than magically might be simply quicker and less taxing. Or on the flipside, very few people have the kind of magical strength to do anything useful.
This doesn't mean that magic should be totally useless, however. Magic could be used for all sorts of things - transporting stones to a stockpile, for example. But the cost involved (the magic-user gets thrown five hundred meters backwards and is physically exhausted, for example) should make doing things like that prohibitive. Magically constructing a portal that shortens the distance between the stockpile and the mine, however, should be quite possible (maybe the magic-user has to prepare quite thoroughly, invest in special equipment, research what she's going to do..) and beneficial, even if the cost is still quite high. This way, there's no cliched magic-user who can do pretty much anything without lifting a finger, but magic retains the mystical sense surrounding it.
Second point, which is kind of along the lines of what Mud said in his post, it'd be a good idea to move away from the cliche of magic that revolves around making items stronger or hurting things. Why not cross out the creative aspect of magic, and replace it with a transmutative one? In other words, rather than pulling a coin out from someone's ear, you turn their ear into a coin. This way, no new properties are introduced into the world, at least not strictly speaking, but old ones can be combined. Rather than surrounding a sword with a fiery aura, your magic-user takes a small quantity of lava and ever-so-carefully transfers the quality of heat from the lava to the sword, trying not to transfer any of the *other* qualities too. Rather than creating an artifact of mind-numbing power from thin air, the magic-user has to gather the constituent raw materials as well as any objects with properties she'd like to instil into the finished object and painstakingly (and probably time-consumingly) constructs it piece by piece.
These ideas might be difficult to implement the way I've described it, but you get the general idea. Magic becomes a more realistic (never thought I'd say those words in the same sentence) force. Of course, this is just one perspective - maybe magic shouldn't be realistic, and the whole point is that it *can* be unreal. I just think it'd fit in quite nicely with the overall feel of DF if it worked this way.