For me, the thing that always made an RPG was never XP, but choices. If you've ever gotten a chance to play Gothic II, it's got a lot of choices that affect a given situation. Bargaining for better pay, information, non-combat resolution... not perfect, but a lot better than the 3rd of the series.
The thing about most RPGs, for me, is that I've read the pen and paper variants for years. Most have some sort of provision for damage to reduce your accuracy and overall competance. Seriously, wounds incurr penalties. Shoot Pavaratti in the leg, and I guarantee he'll miss a few notes.
There are ways to handle damage other than a hundred hit points. Some systems, you might have 10 points of stun, 10 points of wounds, and five points of dying but not dead yet. A real combat juggernaut might have up to twice that. And decent armor.
In most cRPGs, I have to sit in amazement at the fact that almost all of the wildlife is instantly hostile to adventuring parties. See, I grew up taking a few weeks every summer camping. Most animals are not suicidally aggressive. Most will avoid people. Or ignore people.
Lots of good ideas have been mentioned so far. I just want to point out that XP isn't the only way to go. And that you don't have to have characters going from puny wimps to demigods... they could just be midrange and work up to, say, above average. You can have more in-depth gameplay when the power scale is shallower, and more reasonable than reaching a point where an army of orcs swinging at you isn't worth the effort of dodging.
With most MMOs, I have a simple problem. If a game isn't fun by yourself, if it's badly built and boring and repetative... how do you stay interested enough to stick around to form the sort of social ties to play with others? I'm usually stuck working some odd hours, seeing people for a few minutes before they go away.

I need a game that's fun to play whether or not I'm stuck playing with idiots or awesome people.
What I'd like in an RPG, beyond multiple options for resolving things, and a system that lets me improve without levels... I like picking up minor traits and blessings. I think Arcanum was the last one I played that I remember seeing this. Certain quest rewards result in small permanent bonuses. Maybe after your exploits in the underground, you've got a bit better night vision. Rid a province of bandits, and you have a bit of a lawful reputation, and rogues will be highly likely to flee if they recognize you. Little things that add up, but don't spell the difference between life and death in most instances.
I do like the GTA world model. Most of the place ignores you, but you can build up different aspects with certain missions. Gain access to new functions of the world. It's sidequest-y, yes. But that's what you get with non-linear design. Optional content. It doesn't have to unbalance the "main" game. And it really doesn't have to be less interesting.
If I made an MMO, consider, not everybody needs to see the same thing all the time. I see a guy building a shack, I help out with that pointless quest... and then he's got a built shack. It doesn't have to be visible to other players that haven't done the shack quest. But it's a visible sign that your actions actually matter to the game world. Might even be able to get away with scaling the enemies similarly. So the elite players appear to be fending off a load of golems... but the newbs are fighting a load of goblins. Either way, it's a struggle to save the town.