At the trainer in the battle tower, you can purchase level cap increases for any skills that can be upgraded (Lockpick only has 5 levels, for example, so there are no upgrades for it). There are a couple stages for the upgrades, for increasing amounts of gold (the first can bump the level cap up to 10, the second up to 13, or so, depending on the skill).
Not everyone in Broken Valley dies, but they don't show up in the fjords (merchants or otherwise). Rhode will be in Aleroth.
I'm not sure if you'll have enough loot and herbs/minerals/books/etc to drain all the gold from the Broken Valley and sentinel island merchants before getting the battle tower. Reloading at veins, chests, etc can help acquire stuff to sell (diamonds can show up in iron ore veins, etc), but I don't think there are any fast or practically infinite sources of loot.
You do get all skill points back when you unlearn you skills, from mindreading and skill books / dragon skill books (unlearning effects human and dragon skills).
