Yeah, the way the server could keep track of where items are hidden is with coordinates. It could probably be programmed so no one sees any hidden items and only calls for a hidden item when they "search" or "hide." When they do one of the two, it could send their coordinate info and then return whether or not it is possible to hide an item there, or if there is an item hidden there by checking a bank of coordinates. When searching for items, it could have some leeway.... I don't know how large a square coordinate is, but it could be set so you don't have to be RIGHT on top of the item, a few coordinates away, and you find the item if it's within them.
I think if there was just a time limit on how long you could hide an item, it would be fine. Say... one day or so. There should also be a max on how many each player can hide at a time. Possibly some other rules, too (set by the engine), about where you can and can't hide items. Maybe each character class can only hide items in certain maps, like their birth-place and then one XXroad map.