I remember that in BG2 Pickpocketing was very rewarding so I tried it in this game. The ONLY good thing I ever got was a +2 Short sword from the drow merchant in chapter 3.

Now I can't pickpocket ANYONE. I even used Dalekeeper to crank my pickpocket up to 40. All I ever get is failed.

Do I have to be invisible? Is there something specific I have to do?

Because as of now, I spent 15 skill points to "buy" a +2 short sword.

In BG2 you just needed 95 percent in picpocket to succeed pickpocketing a non-rogue 95 percent of the time.
In IWD2 it depends on the victim, his/her stats (int and con ?) influence the difficulty.
A helpless peasant is quite easy to pickpocket, while characters with good stats are extremely difficult. In HoF mode it's nearly impossible to pickpocket most people.

To increase the success chance you can increase the dexterity modifier and luck with spells or equipment.
I don't know if it influences the difficulty if others are watching.

But since this is DnD 3.0 shouldn't the pickpocket skill level be the only REAL important factor here? Since Luck and Dex at bonuses TO pick pocket.

I.E Pickpocket = 10 (5 ranks + 3 dex + 2 luck).

The only thing I can remember that's worth pickpocketing is Lucky Knucky off of the not-a-merchant in the merchant shop in Targos.

Lord Ulbrec's ring is not bad at the start either (and Oswald carries a few potions).

All in all you get some extra money and stuff which can be helpful (especially at the start), don't put too many points in that skill (you can raise it with DEX and items or a spell like Cat's Grace).

Armor penalties apply to picking pockets... beware!