Originally Posted by fatBastard()
The way I see it is that Bethesda listened to the criticism they got for Morrowind regarding the issue I mentioned earlier, that about halfway through the game, you're basically invincible and even Golden Saints and Deadra are but kittens for you to kick around as you see fit. The level scaling system was the result and though certainly not perfect, it is a step in the right direction as far as I'm concerned.
Even though the punishment for not picking a combat style and developing it increases as you level up, the level scaling still manages to provide the player with a challenge for much longer than Morrowind did. Sure, by the end you're still pretty much untouchable but that is the same for most RPGs and it took a lot longer to get to that point this time around.
The loot problem is indeed a valid point. In my case, I leveled pretty slowly so by the time every highway man was wearing Glass Armour I had already collected my complete set and the abundance of costly loot is outweighed by the limitations of the stock you need to buy, like arrows. All of the unique items in the game are pretty much quest items, so they are not really affected by this issue and the only other really valuable loot are the portal hearts which you use to enhance your armour/weapons and since there is one per portal, they are not affected either.
Then again I solve quests for the solving's sake, not the reward/loot in the end, so that is probably also a reason why it didn't really bother me much.