Seriously, I think level scaling completely kills all motivation to make a strong character. Can't get to the next area because you're too weak? Trying new methods and skills really bring out the charm and sense of satisfaction when bringing down a foe. Also, I liked how daedric armor was rare in Morrowind. I actually felt badass after I found my complete set.
i think that leveling your character in an auto-leveling world isnt made for beeing stronger than others but having the game become more interesting. it's not what u r supposed to feel when u level up (more interesting for yourself rather than stronger to others) BUT i think the pay-off is that the game will remain challenging and balanced throught. IMO it's more important that i will not be a level 20 character when 50% of the game world is too easy to be fun and the other 50% is too hard to be fun.
HOW TO TACKLE AUTO LEVELING?
1) i think that main quest missions should NOT be auto leveling. the 10th quest will always include level 15 mobs no matter what level are you. tackle this quest only when u r strong enough.
2) side missions DO auto level so they are always fun to tackle.
3) make the weaker enemies stay in the game world long after u passed their level. just add a few tougher enemies. this way u will always find these bastards that used to give u a hard time and get your revenge but along them there will be enough tougher foes to challenge you.
4) instead of drastically change the type of enemies populating the world to match your level , change their numbers. so once u r a lot stronger than your everyday bandit, now u must face 50% more of them if u passed their level by much. this way the challenge remain, but instead of a challenge from 2 or 3 stronger-than-you bandits it's a challenge from 6 or 7 weaker-than-you bandits.
doesnt that make sense?