off the top of my head, I can think of 3 primary leveling systems, which can themselves be hybridized: Level systems (XP, Level up, you gain an increase to stats, some of your choice, some automatic, and certain abilities, some of your choice, some automatic, the options and automatic increases dependent on a class) Tree systems (You gain a set number of points as you advance through the tiers of levels. You choose abilities, and move your way along the tree, higher level skills requiring certain choices in the tree beneath it.), and Point based systems (Rather then levels proper, a set amount of XP grants you points which can be spent on a large pool of skills of various point costs). The best system is dependent on the game. A meaty RPG should have a level system. An action adventure should likely have a tree based system. A shooter should have either a tree or point based system. Generally speaking, of course.
My favorite leveling system is probably in DDO. There is an obscene number of character customization options. Feats, skills, class abilities and attributes all act as sub systems in a truly amazing greater system. Being the d20 system is the greatest reason, but the action point system manages to make the character creation have that much more meat. Tree based systems are difficult for me to decide, but I might have to go with Diablo. Point based systems...well, the new WoD rule systems is truly elegant, and does a great job of re-enforcing the need of role playing. If we were to go for point based systems in Video Games...well, System/Bioshock are very good.
I also see that there's sort of a fourth system, where using a skill increases that skill. Ive never been a huge fan of these. However, I consider them to be a very roundabout point buy system, where you essentially decide where your points are spent by your in game actions.