...but text colour seems to be correct.

I realise you are using LibItemUpgradeInfo - and that had some issues with Artifact iLevel but this is something different:

Items are displaying as the base item level - ignoring upgrade and scaling.
However the colour coding (against player iLevel) seems to be correct, suggesting correct call used for colour coding, but incorrect call for actual display level.

Artifact getting it wrong:
(https://cloud.githubusercontent.com/assets/6533428/19839750/61c388b4-9edf-11e6-867f-00a22ca9ab5c.png)

iLev 750 is close to player iLevel and text correctly [yellow] - but number very wrong
(https://cloud.githubusercontent.com/assets/6533428/19839751/61ceff1e-9edf-11e6-99dc-2d64a6b2cf8c.png)

item iLevel 735 lower than player iLevel and text colour is [orange], which is correct - but number displayed is wrong
(https://cloud.githubusercontent.com/assets/6533428/19839752/61d116b4-9edf-11e6-84c2-25777204278e.png)

I'm not sure I explained this terribly well,
Any ideas?
B.

I'm also having issues with ilvl. All of my gear now shows ilvl as 680 when in my bag. The character screen shows the proper ilvl.

EDIT: Only since the latest update

Same issue here, and I've included a screenshot below.

I can confirm that it is directly related to Adibags, disabling the addon resolves the issue and enabling the addon brings the issue back and this is the only addon in use in both scenarios.

Issue did not present until I upgraded to latest version of Adibags this morning. (Release v1.9.3)

Have not tested the Alpha v1.9.3-1-g7694f4a to see if it has the same issue.

Update: Just realized that AdiBags v1.9.3 was using LibItemUpgradeInfo-1.0 Release-70100-26. Manually replacing that version with the updated LibItemUpgradeInfo-1.0 Release-70100-27 or the older LibItemUpgradeInfo-1.0 Release-70100-25 resolved the issue for me.

I tagged a new release to embed it.