I'd rather do away with the massive penalties for level differences above a certain amount and just have enemies steadily get tougher.
Yes, but more than that…
incorporate puzzle into the game via progression options discovered through exploration and thinking outside-the-box.
You can go A, B, C, D or you can go A to D, find a pivotal item which can carry you in place of the extra levels. This is all planned for by the game design and it rewards people for thinking outside the box and trying out different paths to to the same destination.
You can tell by the way you can kill almost every NPC in the game that this kind of thing is what they wanted to do then they messed it up with a forced linear progression, with artificially inflated game time from deliberately slow movement and combat, because they just don't know how to make a good game.
It's like they know what they want and they can express it so we get excited then they really just don't know how to do it.