I didn't like oblivions leveling, it didn't requre you to level up at all.
That's because the way level scaling worked made it so that even at level one, you could kill most enemies in the game (Though actually, you couldn't complete the main quest without at least reaching level 2, because you need to be able to get at least one Daedric artifact to complete the main quest, and the Daedric quests all had level requirements, the lowest of which was level 2.). In fact, if you focused on non-combat skills, leveling could be a disadvantage, as enemies would keep getting more powerful while you wouldn't, since you only got more skilled in things that aren't part of fighting. But presumably, this will be fixed in Skyrim.
Back on the subject of grinding, though, I really don't see how they could remove that, short of making the game so linear that you never get oportunities to grind. I wouldn't even say grinding is limited to games that use the kind of skill system the Elder Scrolls uses, because level grinding seems to be a pretty common practice in MMORPGs too, just that since these games usually use an experience-based leveling sysrem and the primary source of experience is often combat, level grinding typically meant going to whichever place has enemies that give lots of experience and you can kill, rather than jumping in place repeatedly or swimming against a wall in the river running through Balmora, but while the game can't remove grinding, it can strive to discourage it, or at least, not encourage it, perhaps the new leveling system will make grinding a less popular tactic, and perhaps not, we shall see, I guess.
Power leveling was very much necessary in Oblivion.
Lots of players seem to get by just fine without doing it, sure, their characters might be weaker that way, but they could still get by, unless you define "power leveling" as anything that's not intentionally handycapping your character.