Of course it works. I would argue it works a lot better than level-up systems, because the two big ones (BF3, CoD) have very poor level-up systems that give higher-level players a big advantage over newer players. Look at Counter-Strike for example, to this day, one of my favorite multiplayer shooters, because you jump in a game, and the only thing making you more or less likely to win is your own skill and teamwork. Now look at BF3, where you jump in as a new player, and you lack essential gear, like the Stinger, or the Defibrillator, it sucks. And made all the worse by being able to buy your way up.
The way to make the leveling system work, is to make the level-up unlocks either cosmetic, or a matter of personal preference. And make it possible to choose what you unlock each level. Basically, make the unlocks equal in value, so the older players can't dominate you by way of gear alone.
Now, I like BF3, but I don't play it all that much. And because of that, I'm having trouble competing with some people. Granted, it's partly because they're probably more skilled than I am, but it's also down to kit. Theirs is better, plain and simple. Which is the point where I exit BF3, and go play CS or something else.