Scaling has always been a bugbear of mine. DOS2 did it badly in some ways: Power and level items went up way too steeply!

@ Try2Handing: I agree a range of creature levels was a good thing about DAO - in fact DAO did a lot of good things!

My comments here: http://forums.larian.com/ubbthreads.php?ubb=showflat&Number=652823#Post652823

re-posted:

"Scaling:
I liked DoS2, but scaling was my biggest bugbear. I suspect D&D 5th edition will deal with this well. Within a system you need internal consistency. Hitpoints were originally representative not just of physical toughness but of the way a character could avoid damage or mitigate it on being hit. Humans / humanoids are not Gods, and if you scale things too far, the stats are unbelievable.
Also don’t make weapons and items scale too much. A level 1 character might stumble upon a +5 vorpal sword: He wouldn’t have it long, as the magic would soon be sensed by a magic user or monster of the planes. Or a rich merchant would pay well for it to take it off his hands, or someone would hire a thief to steal it. Lol you could include that in the game at first level, but then have it stolen after a bit, or be overwhelmed by a high level adventuring party that leaves you alive, but robbed of the high level item.
I think for immersion you need to look at a level 15 character and compare it to a level 1 character (with appropriate gear for level) and see just how big the difference is. If it is too big, it is too unrealistic! Again I suspect 5th Edition D&D will help prevent this."

In earlier D&D (I think 2nd edition), you saw a falling off of level gains, so that characters didn't become OP at higher levels. I still think this is the best way to do it... while some increase is still available at higher levels, the benefits should not be as great as earlier on... this means characters are still challenged by fights from earlier levels: just not as much.

One way would be:
make THAC0 reductions spaced out more at higher levels
maybe give more tricks on level ups (eg. HLAs), but make them NOT powerful, but just giving different options or ways around things. More tools!
Reduce hitpoint gain on level up significantly

Just imagine a log curve tapering with level on the X Axis and relative power on the Y Axis.... There is limited returns to levelling... BUT there are still returns!