Josh mentioned in an interview (I believe the PC world one) that guns were Wizard killers, since their Arcane Veil cant protect them from bullets. I think it is a very situational weapon, hugely powerful in the first round, but also hugely noisy and takes ages to reload.
I guess having characters firing a salvo in the first round then discarding the gun is the way to go... if I chose to go down that path.
I really don't mind guns and magic co-existing, Arcanum has been mentioned, but Final Fantasy and Shadowrun do it well too. And in all these setting, the guns were quite a bit more powerful than muskets. Wizardry did it too, although in Wiz 8, they did ok with tech/fantasy mix except when it came to the energy weapons in the end game.