Overriding theme_item_list() not working
You don't need to implement hook_theme() if you just want to override an existing theme function.

I've just tried this code in my template.php file:

function MYTHEME_item_list(&amp;$variables) {
  // my custom stuff done to theme_item_list 
  return 'test';
}


And all calls to theme('item_list') now return the string 'test', and nothing else.

You'll need to clear Drupal's caches once you've implemented the function, that might also be an issue.