Nice discussion, I've been pondering the same thing lately: What makes M&M so damn FUN?
I played MM6 for a while after it was sold on GOG before getting pulled off into real-world stuff, and never got back to it. The MM7 came out, and I'm hooked even more-so now. The character progression improvements over 6 are just so...logical.
I think it's sheer genius to tie your character generation to NPC interaction. By making NPC's be your characters' trainers, this ties exploration, character advancement, and NPC dialog all together into an interesting and fun dynamic that makes NPCs a vital part of the game world (well, it's fun as long as you've got a webpage handy with all the different trainer locations
.
Another thing that helps is that the tech limitiations of the day actually helps to streamline things.
For example, if I come into a new town and want to start exploring, do I really need to have a complete 3D-rendered view of every single house and abode? Just being able to click on any door and instantly jump into a conversation with the occupant gets me everything that I need, and makes it very quick.
I could see this working in any modern AAA game as well. How much would it add in Dragon Age if all the houses had doors that you could interact with, simply jumping you right into a conversation tree with an NPC, accompanied by a beautiful 2D illustration?
Of course, in the end, the constant and never-ending character progression to God-like status (yet with a challenge commensurate with that status) is what makes these games special. I'd love to see this winning formula applied to a modern engine...