One (or more?) of the expansion decks introduced Equipping Allies. Something like "when you draw this card, decide if it is an item or an ally. If you choose item, place an exhaustion token on the card." Does this mean if I choose item, i can have 2 "regular" allies as well? Cant recall what card it is, but there is one that if choose it as an item, its now a Weapon: Dagger. I assume its Activate to use item, and i can only have 1 other card that says Weapon on it. Please let me know if this is correct. Thanks in advance.

P.S. I love this game! I was hooked the first time I played it.

Sounds correct to me. If it becomes an item, then it cannot be an ally and should count toward item limits.