Hmm..if you run out of monsters there is after all the option to use the villagers as sparring partners >:)
Seriously, another thought which I ever had loved to see is something in between those proposed wishes.
We know about the problems of game balancing on one side and xp farming on the other.
What is in MMO games essential (unfortunately) can quickly derail most other games, especially solo games.
The classic munchkin will give a damn on game balance as he just wants to dominate the world and bug other players as fast as possible.
For most of us I am sure we prefer a balanced, immersive world even some like to be able to eradicate ‘evil’ and like the feeling of accomplishment by the enemies stay dead as others don’t like the idea of a dead world.
Both points are quite valid so here’s a possible solution.
If the game world is big enough (and I doubt that would be a problem like by all Larian games before ) then it would be nice to see some natural ‘spawn points’ in form of e.g. an orc settlement, a dragon nest, a burrow, a bandit hideout, a troll cave, etc.
Such systems are often used by real time strategy games (RTS) or arcade games like Gauntlet to supply additional enemies once the roaming ones are gone.
An additional advantage is that the re-spawning could be controlled that way, allowing the dev team or maybe even the player with an option slider like e.g.: ‘infertile - natural – bunny love – enough already - open the gates of hell’.
The players could then also decide themselves if they really want to shut down the ‘threat’ for good and destroy the spawn points and wipe out those innocent eggs, baby and mommy orcs, etc., showing the world who the true monsters are 
Additionally could monsters, not the player type, still migrate in even that might depend on the reputation players get how fast and thorough they wipe out former settlers.
That could lead to some interesting ways of xp farming when impatient players hack fire wood for the orcs, hunt for them and play romantic music in the night for them to speed up their ‘harvesting’ ;p
I would really love to see such ‘spawning points’ in rpg games as it does not makes the world more immersive and believable but could be a helpful way for the dev team and/or player as balancing tool and appeal to different playing styles.
