There's always going to be exploits. It's not worth putting tons of effort into preventing them. With skill based levelling like Daggerfall and Morrowind there's a whole range of things that could be considered exploits and you cannot totally eliminate them all.
Balance is a different matter. It's not as important in a single player game as it is in a MMORPG, but its still important. There's nothing worse than wanting to play a mage, for example, only to find the game way too hard, or too easy. One of my biggest complaints about both DF and MW is that they are way too easy for a warrior, and often much harder for other skill sets. There were a number of reasons for this, including:
1. As a warrior you only needed one skill, your weapon, whereas a mage had to master several schools of magic to be effective.
2. Warriors only needed strength plus some agility and endurance to be effective, whereas a mage needed most, if not all, of the attributes. Mages still needed strength to carry loot, endurance for hit points, speed for running away, in addition to intelligence and willpower.
3. Weapons did damage with no real cost, whereas a spell required magicka and took time to cast. Weapons rarely miss and almost no creatures had resistance to weapons. Magic had a percentage chance to fail, had to be aimed, and could often be resisted, reflected or absorbed.
4. Mages had no real protection if they did not wear armor. Magical shields and other defenses were very expensive to cast, and there was no particularly useful 'non-armor' option. All defense magic stacked with armor anyway, so there was no downside to using armor. Because the game was balanced to account for stacked armor and magical defenses, anyone with no armor died really easily.
5. Magical enchantments could be added to weapons, armor and clothing that were just as good as anything a mage could cast, often better. So a warrior could have weapons, armor and magic.
Daggerfall was more balanced than Morrowind in many respects, though it was still unbalanced. In Daggerfall, your spells cost much less magicka as you got better at casting them. This was a good idea, although it was taken too far because high level mages could cast very effective spells at minimal cost. In Morrowind, a spell always cost the same amount of magicka and powerful spells cost so much that the mage was constantly drinking restore magicka potions.
Another problem with Morrowind was that there were just two races that made good magic users, unless the player picked one of the magical birthsigns. Even with a magical birthsign, it was hard to have enough magicka without boosting intelligence through the roof as soon as possible. My current character (yes, I'm still playing MW) has 63 intelligence plus 48 from items, giving him 278 magicka, which sounds like a lot until you realize that most of his spells use 100 magicka. Daggerfall let you give a character of any race tons of magicka, plus the spells cost less anyway.
The Elder-Scrolls games (well, DF and MW) are rather hard to balance because they let a character have any combination of magic, combat and stealth skills without penalty. So any character can use a sword just as well as any other, with practice, and any character can wear armor, even a mage. A mage did not lose anything from wearing armor, while a warrior did not lose anything from using magic. So the game tried to be balanced for both a weak, unarmed, wood-elf mage in a robe and a huge claymore-wielding nord wearing full plate armor enchanted with a magical shield spell. It isn't really possible to balance such a system, without having pros for wearing no armor and cons for using armor and magic, pros for using pure magic and cons for using enchanted weapons, etc.
There are ways that the skill system can be more balanced. For example:
1. Make the number of skills required for combat be roughly the same regardless of character. In DF you had two attack skills for a warrior: critical strike and the weapon skill. That was more balanced than the one skill needed in MW. Another idea would be to introduce a reason to practice more than one type of weapon. After all, a mage needs to learn most of the schools of magic to be effective, so why does a warrior get away so easily with one weapon. Maybe there are critters than are vulnerable to blunt weapons, or maybe its easier to backstab with a short blade, or perhaps axes break shields easier, or possibly bladed weapons are harder to repair. In general, there should be no obvious best weapon type, like long blades were in both DF and MW.
2. Avoid letting similar effects stack. One of the biggest problems with MW was that you could fortify an attribute using many different items, spells and potions all at once. I could fortify my intelligence by wearing five fortify intelligence items, drinking a potion of fortify intelligence, and then casting a spell of fortify intelligence. The same applied with healing potions: I could drink 4 at once and regain 4x as much health in the same time frame. Many games only allow the largest single effect of a given type to count, which seems reasonable to me.
3. Limit the contribution to levelling of raising a single skill. If I do nothing but make potions all day, should I really end the day at level 10? What does a level mean, exactly? Levels were used to determine the difficulty of critters you met and the type of loot you found in DF and MW. Does it really make sense for someone who raised Alchemy to 90 to encounter the same stuff as someone who raised their axe skill to 90? I would rather see the rate of increase halve each time the skill goes up by one, until the character levels up. So getting the same skill to increase a second time take twice as long, and four times as long for the third increase. At level-up, the rate of increase goes back to normal. This disuades people from repetition of the same skill, and it encourages people to make use of more skills. For example: it might encourage a warrior to use more than one type of weapon. Another reason I like this idea is that it reduces the need for me to restrict the use of a skill. In MW at the moment I can only rely on stealth part of the time because if I sneak in every dungeon my stealth - a major skill - causes me to level up too quickly. I also hate having to make restore magick potions in small batches because I do not want to level up via alchemy.
4. Simplify the level-up process. Many people disliked the MW system because it penalized you for not micromanaging which skills you increased each level. I disliked it because it forced me to use skills that were "out of character" just to get necessary attribute increases. For example: my mage was forced to wear medium armor for a while just to get some endurance increases, and use a sword just to get strength increases. Also, it was hard to increase luck because there were no skills linked to it. I think the idea - link attribute increases to player activities - made a lot of sense but the implementation was too extreme because I could only increase attributes by 1 point per level if I did not increase the right skills. A more balanced and less annoying system would be something like this: Give every character 8 points to assign to attributes at level up; the number of points that you can assign to one attribute is capped based on how much you increased skills linked to that attribute, with a minimum of 2 and a maximum of 5. This way, a micromanager could get +5/+3 or +4/+4 whereas someone who did not pay much attention to the skills she increased could still get +2/+2/+2/+2, but more likely +3/+3/+2 (since she obviously used some skills).
5. Balance using a weapon with using attack magic with using a magical weapon. For example: enemies can parry/block weapons but not magic; spells travel fast and are hard to dodge; all weapons – not just the very heaviest ones – cause fatigue and fatigue actually means something; fatigue is harder to recover; some critters are resistant to weapons just as some are resistant to magic; failure to cast a spell costs less magicka; its quick and easy to switch between a few favorite spells (even with a console controller); cast on strike enchantments are much weaker than spells.
6. Balance using armor with using no armor with using magical defenses. For example: a dodge skill (like in DF) that adds to the characters ability to evade; armor penalizes dodge, swimming, climbing, running, spell casting %; meaningful fatigue penalties; a more linear relationship between armor level and damage (in MW, if the damage was much higher than the armor rating then the armor offered almost no difference in protection over no armor at all, making low level armors and shield spells pointless against higher level critters.)
7. If using skills is how you are meant increase them then stop having other ways to shortcut the process. In MW and DF I never used trainers because they just seem out of place to me. It made no sense that I could go to a trainer with a bunch of cash and 'buy' a level-up. DF handled it better than MW because you could only train once per day and the cost went up as your character went up in level, but it was easy to exploit by resting a lot and by raising all your non primary/major skills while remaining level 1. In fact, both games suffered by allowing the player to rest for any length of time, which made it easy to take advantage of anything that reset after X hours, like training in DF and merchants in MW. If you really must have trainers, then make the cost get exponentially higher each time a particular skill is trained, so the cost is based on the number of trainings, not the level of the skill or the character. Better still, make it so all trainers can only train up to 30 skill. Beyond 30 the skills can only increase through use.
Of course, there is another – easier – way to balance the skills: just add a lot of difficulty options to the game. MW had a difficulty slider, which was added after release. It was better than nothing, but a lot of people found it annoying because all it seemed to do was make enemies hit harder, which resulted in some fights being super hard while others (against mages, for example) remained easy. Player made mods for MW on the PC provided much better difficulty options, such as the ability to increase/decrease enemy hit points, magicka, strength, attack rating, shield blocking, speed. Unfortunately that is not available for console players and it took nearly 2 years for a player to figure out how to do it. Also with PC MW it was possible to easily control how fast skills increased and how level-ups worked, using the constructon set. That was nice, but once again it excludes console players and people who do not want to tinker with mods. It seems to me that it would be much easier to balance an RPG by adding these types of options to the game. It would be hard to create an unbalanced character if the game provided the ability to control various difficulty factors. The variety of options is crucial since different players want different things. For example: as a mage I would like fights to last longer but would prefer not to be killed in one hit, so I would increase enemy health and magicka, but not strength. I might even decrease enemy speed just to give me time to switch spells without having to pause the game.
