Drawbacks:
Unique weapons are level dependent, therefore if found too late, absolutely worthless.
Encounter difficulty absolutely dependent on your equipment's level (quickly too easy and quickly too hard) (ie. optional fight Cyseal Harbor Warehouse, only two levels higher (2. vs. 4.) and you can't even hit them, but even when you do hit, all damage gets absorbed. It's just an example, I know you don't have to steal there and start a fight. I am just pointing out, that even a small level difference results in an impossible encounter, not hard, impossible.)
After level up, you need to buy/find new equipment to access your new "powers"
If there is no level scaling, it leads to a linear gameplay. For this region you need to be level 3, here you are only "allowed" with level 6 and there you can go there now, but you will die. You should have grinded a bit more because everything below level 12 gets slaughtered.
Advantages:
Level scaling..., everything gets multiplied by a level. I think this is just weak. It has its place within diablo 3.
Random loot, I see no difference between flat damage weapons and level weapons. With flat damage weapons the durability could be much more interesting. Now you change your weapon way to fast. And then you are happy to find another two handed sword because yours is about to brake.
