Whenever you save & quit, any item left lying on the ground is gone for good. (I'm not talking about
placed items, obviously, only things which have been dropped or thrown. ;) ) That's why I've still got the game running in the same session -- if at all possible, I would like to recover my stuff.
Regarding how long stuff dropped on the ground lasts, it
should persist until either A.) you save & exit to the menu, or B.) the number of items left lying around (in this case, counting stacks of multiple of the same item -- e.g., 30 torches -- dropped in the same place as 1 item) in your current world exceeds 400. In the latter case, the game should start deleting the items which having been lying around the longest first. Just to be on the safe side, though, it's generally a good idea to simply not leave too much lying around on the ground -- even if an item is more or less useless to you NOW, you never know when the material you thought was worthless early on will turn out to have a couple of really valuable uses later in the game that might have you smacking yourself in the forehead for throwing it away/leaving it behind earlier. If nothing else, try to sell stuff you don't currently want.
I don't know nothin' about no Medusas or no yo-yos -- I'm still rocking 1.2.4.1. I'm starting to feel like installing the newest version, but at this rate I might not be able to
quit the game so I can reinstall anytime soon. =]
EDIT: Dammit, partially ninja'd by a Doctor Seuss character!