Basically, make it a scaled level system dependent on location, not on you.
The Core: Levels of creatures and rewards in general are static within a level range. What you encounter is based on location. The closer you are to towns, cities, hamlets, occupied forts, roads, etc. the percentage on running into low level creatures raises considerably and the percentage of running into high level creatures decreases considerably. The degree of percentage shift is based on what kind of occupied area it is. The bigger and richer the settlement is, the slower the degree change is the further away you get from it. The smaller the settlement, the faster you will see the percentage go back to a normal average. The same applies to hostile settlements - bandit camps, necromancer lairs, barbarian forts, etc., but they're difficulty also relies on their distance from populated areas.
The Creatures: The creatures themselves have two properties - level range and encounter percentage. All creatures/enemies can be from inexperienced to battle hardened. The longer a creature lives by lore, the wider the range can be. Based on the level that they get, they have an encounter percentage of appearing in an appropriate location: undead in crypts, trolls in unmarked caves, bandits in abandoned houses, etc. Any creature can appear anywhere at anytime, but they have a much more likely chance of appearing the average distance from town in a reasonable location.
The Rewards: Treasure works pretty much in the same way as creatures. You have a likely chance of finding high level rewards in ares with greater percentages of high level encounters. You can find anything anywhere, but it just follows an average.
The Settlements: Any populated area will have the residents' levels determined by how rich and populated the area is. The higher the economy and the more people, then the higher the level range of people you may encounter will be. In a hamlet, will generally have low level villagers and maybe one or two mid level guards. An imperial city, on the other hand, can range from low level people to master level warriors and wizards who probably work for the empire. Hostile settlements will follow mostly the same rules. The more populated it is and the more wealth it has, the higher the level range for people will be. However, since they are enemies of the normal people, they're level is also based on the distance from surrounding towns.
The Inverse: Now, there are plenty of areas that do the exact opposite of settlements to meet an equilibrium. These areas themselves have a level range based on what they are. These areas mostly governed by chaos and power instead of law: Caves, crypts, tombs, ancient ruins, abandoned forts, forgotten shrines, etc. The closer you are to them the higher chance of running into higher level creatures becomes. Also, the deeper you delve into these places the higher percentage of high level creatures appearing becomes. Of course, the level ranges these places are is based on the obvious. A random cave will generally have lower level creature percentages than an ancient tomb. These places clash directly with the influence of settlements around them. The abandoned fort right outside of town will have a difference with the influence of town, but the town has a higher power as close as it is and still makes that fort relatively low level.
The Quests: Quests will only be impacted by this system when they take you far out of the range of towns. The quest area itself can be designated to a certain level based on what you are expected to be when getting there. Of course, random quests that take you far outside of settlements will have appropriate rewards. However, normal quests will still have hand leveled and expected rewards. When the extremely high level archmage asks you to pick flowers for him outside the tower, you probably are going to get a very small reward from it regardless of his level.
The Exceptions: No automatic system is perfect. There can be clear exceptions placed in to liven things up. What would fly in the face of these averages would be hand placed areas/objects/creatures, quest line encounters, unique encounters based on player levels, etc. While most towns are safe, it is possible to hand place a ancient forgotten tomb below the town's sewers that is fairly high level. Also, kind of like fallout 3, there can be unique encounters that are pulled based on your level and happenstance. This is really up to whoever is designing the game, so I have little comment on other than that it can be done and it is up to them for how much and how often.
The whole goal of this idea is to create a logical pattern for how you encounter things that is safe to follow but not set in stone. Towns prefer not to be beset by lichs right outside their doors and have tamed the area around them to some degree. The further off the beaten path you go the more dangerous and potentially rewarding things become.
Challenge is right around the corner if you want it, but you aren't forced into a system based solely around you.
