In Oblivion this is totally broken because it did not matter where you went and how much you developed your character, you would be always challenged by similarly leveled foes.
In Morrowind, it meant a lot to develop a character, but it had a limited scale of 30 levels and so, after that, you were the greatest force in the universe.
This was because the scales of character developments were very small and compressed, so when you met a foe that was 8 levels above your current character level, it would become a hard battle, but one that you would not worry about if you had some healing potions or spells at hand, so the scale of 8 level difference was not much.
The 8 level differences could mean for instance 20 level differences between the main attack skills and 15 level differences between the main defense skills, and better gear as well, so in a better scaled game it should be more serious than what we see in current games.
So if we had a better scaled game in a better scaled world and better scaled damage and defense values, and better scaled character interactions, it would have more lasting appeal for character development.
1-First of all I propose removing the hardcoded cap of 100 for all attributes and skills for all the characters and set the caps differently for each character depending on their gradual specialization throughout the game and their character development and let them develop their focused attributes and skills indefinitely if they like, but with exponential skill and attribute advancement costs in the term of practice time, or other means of development, then it would limit the characters but would not set a hard cap over their head.
Or if they decide not to specialize at least make the development cap a soft cap, i.e. skill and attribute development become exponentially harder to develop, so you would gradually slow down, but never hit a hard wall.
2-Next I propose ignoring what seems to be realistic life-like behavior, and setting the scales in such a way that advancing a skill or attribute should have noticeable effect at each small advancement, and scale the weapon and armor effectiveness to the same effect, so that each small advancement in the quality of weapon or armor equipment should be clearly noticeable.
So early in the game when you fight a bandit and you are forced to retreat to a nearby village to heal and resupply, if you sell your current loot and change your low quality rusty iron dagger with a sharp iron dagger, and change the tattering leather armor with a worn leather armor, and return to the previous battle scene, then you should notice a change of tide in your favor.
But if you did not have the means to change your gears, you could find an easier place and fight some rats or other pests to practice your dagger and dodge skills a bit, and raise your dagger and dodge skills and your agility and speed attributes by a point or two and return to the previous scene to the same effect.
Each skill can have a counterpart in the opposing foes, so if you sneak around, they can have a Perception skill or attribute to oppose that, or if you attack, they can have block, evade/dodge, or armor to oppose that, it you try to force your will, they can have Willpower, and so on, and each small leap in any of these parameters should have a significant effect, to encourage the character and gear development.
It would result in big numbers and values in internal calculations, but it does not matter, the end result would be much more scaled game world and game mechanics that would result in a more satisfying routine for character development.
3-After that I propose that the game world should be made of leveled zones, and have leveled loot and opponents in those zones, so in each leveled zone you encounter the foes and find loot leveled to the zone plus/minus the defined level for the foe and loot, or a random value, and those zones should be scaled from the newbie character level, to levels above the maximum possible character development in a normal game, for instance 100.
Thus there would be always some places above your current character level, and some places below your character level and some places about equal to your current character level, and as each small advancement character level and gear, and in each zone difficulty level should be significant then it would result in a great game mechanism.
The more you develop your character and his gear, the more places open up to you, i.e. the more places you can venture into without the significant risk of getting yourself killed.
Players can start the game in newbie areas, so it would be easy to begin, but they would have to be cautious about where they go, and be ready to retreat to safer places if the scene became too hot for their health, but each new loot or each new skill level or perk could result in new areas that a character would be able to go.
Some cities can be in newbie areas, but others can be in higher level areas, and have higher level items for sale, higher level master trainers, and higher level quests, and so on..., and because of the more scaled effectiveness of higher level items, reaching those cities that sell higher level gear can be really a milestone in each character's carrier.
4-In the end I propose that the game world to be big enough, the game sky to be foggy enough, or the game landscape to have enough mountains and valleys, so that players could not see the end of the world in a glance, and this feature, added to the gradual possibility to remain alive in newer areas would result in a game that seems quite enormous, and would result in a never ending challenge.
If there were always places that no character would survive for long, with foes so powerful that would beat the crap out of any character who dared to enter their lair, there would always be a challenge for the daring characters who wanted to prove that they would not be defeated.
There can be contests like:
The first who can beat the "Eternal Guard" in the back yard of the "Azure Palace" in the "Isle of the Titans" would be the winner.
OK, so you beat that guard, let's enter the palace itself and confront the two guards at the entrance, and so on...
The elite guards of that palace or their captain, or the Eternal King himself would be unbeatable in any possible mean, unless mods made that possible.
OK, so this is what I call a greatly scaled game.