I do like character's having a background, even if it does have no effect on the game. What I'd suggest is giving the player attribute points and skill points to spend and then have a box where they can write their bio. With pre-determined backgrounds, all you're doing is restricting what your character was. Your background probably wouldn't have much of an effect on the game anyway as there'd be too many options to consider. If you wanted, you could also provide some Reputation points to spend on different factions if you wanted more depth in your background (eg. Get along with nobles better than villagers)
While it's great to focus on the Role Playing aspect of RPGs, don't forget the Game part either. No one wants to play a copy of their own life. They want an exciting one! Levels are good because they give players a visible goal, a reward. Sure there's more realism in gradual progress, but where's the excitement? "Ooo... I have 426 minutes of Sword experience. Beat that!" You'd still be a pretty even match for someone with only 380 minutes experience.
One other thing I'd like to see in an RPG is actually a restriction. You may join a guild, but only one. Guild membership entitles you to unique skills, quests and equipment. So, make your choice...
