Here’s my take:

1) Get rid of all level indicators on icons (they look messy anyway and will look worse when we get to IV or even VII). If you want to see what level a spell is you can hover or use the slot indicators to filter them. We also don’t need the same icon more than once (imagine when we have six magic missile icons with different numerals on them).

2) When you click a spell icon to cast it, everything on the hotbar dims and the slot indicators glow that are of an appropriate level for casting or upcasting that spell. Clicking on the slot indicator of your choice casts the spell and expends the slot. If you can cast from an item an extra slot indicator could temporarily appear on the far right that lets you use that charge.

That way there are less things jumping around and a direct correlation between remaining slots and expenditure.