I think the key is to avoid a situation where every single encounter in the game is going to be pretty much at your same level. Otherwise, for me at least, the fun of actually seeing your character(s) develop and be able to take on encounters that were previously impossible - i.e. the core of the CRPG experience, IMO: character growth - doesn't exist, because every encounter becomes bland. Hard level caps - as usually implemented, at least, where your character growth maxes only about 2/3 of the way through a game - also kill that sense of fun.
That said, you also don't want to have a super-god character one-shotting everything in the world during the last half of the game - the other extreme. You just want to have something challenging available somewhere in the world at any time, no matter your level - but Oblivion-style bandits in glass armor? Yeah, pass.
