So the question are, is an RPG without leveling still an RPG, and is it viable?
First, everybody is arguing depending on the way they define RPGs. There is two way to go about this: how they should be, or how they have been portayed until now in games. I'm a partisan of the former way, and here's my take on it, with which you most likely will not agree.
Roleplaying revolves around a character. There is no denying that. The actual rolepaying resides in defining AND/OR developing this character. It is achieved through choices and consequences. Let me illustrate:
Really, it's that simple.
Why is it a valid definition? It's all about the reason we roleplay. Roleplaying is all about experiencing roles/situations you can't/don't do in real life. If you are not doing this, then you are not roleplaying. Anything else you would be doing is another gameplay mechanic, such as combat, mini-games, puzzles, etc., which can be combined with roleplaying.
Character development is usually presented in games by experience points, and sometimes levels. But that is not necessary. Any aspect of a character is worthy of development, be it fighting skills, thieving skills, social skills, social relations, personnality, influence, social standing, knowledge, etc. In no way does this force a gameplay mechanic, ie leveling, as a mandatory way to roleplay. The reason why common leveling is associated to roleplay is that most RPGs revolve around combat. Obviously, the gameplay mechanics are going to follow.
The point here is that, if you are going to remove the leveling system, most likely the gameplay will change (if designed well). If it still revolves around combat, you got yourself something similar to a FPS combat gameplay, and/or a combo melee combat gameplay. Otherwise, you'll have something that takes in account the evolution of the character's aspect(s) the game revolves around.
Plus, a leveling system often means that the only development you have in the game is in the numbers from the character sheet. That even happens in the RPGs we usually find best (Fallout, PS:Torment, etc...). Leveling up in skills is sometimes useless (ex: Doctor in Fallout, or Gamble), and therefore you don't have real character development because in game, there's nearly no effect.
Development requires consequence.
You could argue that it's a flaw in the design, but I think it's the system that's not the right one for the use. There is others ways to show character development, in game, that are more appropriate to certains aspects of character development such as personnality, social standing and influence. They don't need a leveling system.
More than that, a leveling system often forces the artificial situation where you are a puny weakling at the start of the game, and end up as a god at the end. Sure, it works in a combat game, but in a game trying to explore character, it's pretty dumb. The leveling system also forces the massive grinding and repetitive actions as a mean to give the character experience so he can "grow". All of it is tedious gameplay mechanics that serves as content filler for designers. Why would fed-ex quests exist if there wasn't xp to gain at the end? Anyways, enough of this, Vogel
rants about it better than I do.
Now, about why I said roleplaying is defining AND/OR developing a character. Unlike in real life, characters have backgrounds that we do not know of, or haven't thought about in their entirety. Therefore, sometimes playing a role is defining it by the choices you make. It's viable to have a roleplaying game with little to no character development, as the game will instead revolve around the exploration of a certain type of character and his reactions in the given situation(s). Here, a leveling system would be nonsensical.
So, yeah, all this to say that without a leveling system, we might be giving more place for roleplaying in a game. Cut the crap and tedious mechanics to go right to the roleplaying. It's harder to do well, and less people will like it because it's more involving (read: less mindless). But that is the kind of game I want to play.
Let's face it, combat has always been the week point of cRPGs. Any other genre does it better. In roleplaying games, you will always be faced with the absurdity of the amount of things you kill, because you're trying to play a character. Other genres don't have this limitation, as the gameplay doesn't need to take account of the consequences. But an RPG without consequences? Ridiculous. This was Fallout's flaw. You could just come to a town and wipe it clean. Unkillable NPCs? A direct consequence of replacing social structure and logic with a leveling system.