I don''t see anything wrong with wanting to level up (i''m ignoring you game-balance issues and instead I''m focusing point 5 made in your last post). As in real life, there comes a certain satisfaction from improving yourself. I used to play DnD, and I looked at my level 9 character with pride, knowing how hard I had worked to get him there.
Don''t get me wrong though. I believe Role-playing is the stronger of the 2 when it comes to Dnd. Our group were very serious Role-players. We could go through a whole session without 1 fight and have an amazing time. I''ve also played in campaigns with no role-playing. It was all numbers, and it was hell. The problem with computer games, though, is it''s very difficult to get the role-playing experience with a keyboard. This hopefully will change with advances in technology. When quality real-time speech is available over the internet, the potential for games will be absolutely astounding.

Actually SpittingTrashcan you might find it interesting to run some searches on what already been discussed in this forum. I know of quite a few threads on Speech recognition alone. Taking a few hours to look through this stuff might give you some ideas.

One thing I feel I should point out is that skill or stat increases should be non-linear - a weak character will make great progress using light weights to train, while a stronger one will gain almost nothing unless (s)he uses heavier ones.

This can be achieved by making ''experience'' gain linear and using a logarithmic function of experience as the actual value for strength (and other things, strength is just the easiest to use for this example), or by gaining experience in a non-linear fashion.

And definitely make use of a resource like Fatigue to limit training - a strong character will be fatigued less than a weaker one by using lighter weights, and so can train for longer, using up time as well as Fatigue. A weak character may well be able to lift a heavy weight, but only a few times before Fatigue is depleted.