If done correctly, this concept would work very well. But you would have to walk a very fine line for a game made using these mechanics. My idea would be to start with a variety of magical powers, but a limited combat ability; so as you progress through the game, at certain critical points and battles you are forced to expend large amounts of magic, growing weaker and losing many of your starting powers, but gaining combat ability to show that while your character loses his initial powers, he is still learning and growing, gainging powers of a different nature. I see a lot of potential, specially from a story telling point of view, but also in game mechanics. While your initial powers are mighty, the progress of the game gives you more range in combat, unlocking more moves and weapon choices as your magic withers away.
The concept would work well with a god-like character, who comes down to a fantasy land to stem the tide of some dark foe intent on bringing about total destruction of the world. The idea is that the longer you spend in this world has a side effect of making you more and more mortal, and by the time you reach the end of the game, you have lost all divine power, and must now fight to save the world as a mortal against godlike beings, the inverse of the beginning, where you were a godlike being fighting against mortals.
It works well as a game play mechanic and for character growth as well. When the protagonist first arrives he is haughty and self righteous, acting like a god among mortals, simply assuming that with his mighty powers he can set right all that is wrong with ease. But as things progress, and he is forced to become more and more human, coming to terms with shades of gray and making moral choices that a god has never had to contemplate before.
