I found the version used in Oblivion by far the more interesting. Not because of the "practice-makes-perfect" principle, and not because of the fuse between attributes and all that stuff. I really liked it because the world levelled up with you.
Instead of making you objectively more powerful, it redefines the balance between your particular skills, and by doing so it achieves something entirely different than a regular levelling system. Instead of giving you X amount of extra magic points per level, while still remaining a competent enough swordsman to exterminate minor rodentry, it defines you as a magic user a bit more advanced, more esoteric than previously, but a proportionally worse everything else at the same time.
In the end, you're equally competent or only marginally better as a character to defeat rats and the like, but you're defined as either a specialized magician, specialized swordsman or whatever you may be. Those who realized this and followed a particular path would succeed, even moreso if they decided so at the onset. In this way, the game was built around you performing a certain role, and did away with distractions from that principle.
This way, it gives you character progression as a character, not as an all-round world antagonist. It rewards not grinding and constant levelling, but rather specialization and a strategic view of your characters progression. I think, had Oblivion been that much less casual and twitch-based, the levelling system wouldn't have gotten such a bad rep. In truth, they could've just have applied it as a hidden set of numbers, and people would've seen it as a brilliant FPS that adjusted your gaming experience automatically, after play style.