This is just a guess on what you might be trying to do, just a lot simpler and (hopefully) faster.

It inserts everything at once instead of going one item at a time.

INSERT ChestItems

SELECT c.ChestID

,i.ItemID

FROM Chests c

CROSS APPLY (SELECT TOP ((ABS(CHECKSUM(NEWID())) % (c.ChestTier * 2)) + 1)

Items.ItemID

FROM Items

WHERE Items.ItemTier = Chests.ChestTier) i

WHERE c.ChestID <= 1000

It might not work as you need, but it's an example of how you could do it.