I really don't mind if there are no levels, but I don't like a game that is too loot-centric like I remember Dungeon Runners was. I don't like soul-bound either. As others mentioned, one aspect of Realm is being helped by others by receiving loot and helping others by giving it to them. Also, it doesn't make sense to me that a new character could equip high level gear if they had it. Plus, if you lose your stuff, your character shouldn't be the same as a new character. I like the concept of character building, but not necessarily general levels.
What I have in mind (and I'm sure other games have done that but I don't know them) is more skill leveling centric. More related to what would happen in real life. For example, the more you use a mace, the more your mace skills increase. The more you cast a spell, the more chances it has to succeed and the more damage it does as your skill in that spell increases. You could still have level 1 to 5 for each skill and it would top at 5. The higher the skill level, the more damage it does. Basically, removing the general levels and build points and earning skills directly, which makes way more sense than becoming a grand master in elementalism when all you've done is hit with a mace. Gear could require a certain skill level. For example, instead of The Wrath requiring level 200, it requires level 5 in two handed sword skill. The only way to increase your level in a skill would be to use that skill. "Leveling" wouldn't feel as grindy since you'd have to vary the type of monsters you attack since it wouldn't be for the same skill every time.
You could max every skill, but have skill slots as @Stephen suggests so you decide which ones you wanna use in combat. It makes things more interesting for PvP even if opponents don't have the same "level" as the newer player can just select all the skills he's maxed and the older player can choose the ones he finds appropriate.
"More powerful" areas could be areas where you need a higher variety of skills that are at level 5 instead of only one weapon skill (depending on which NPCs the group is comprised of). Maybe you wouldn't necessarily have more health points, you'd just do more damage since you have higher skills so you could take on more difficult NPCs.
And maybe we could have a HG baldric to indicate someone who's maxed out every skill, as a way of top achievement to keep it in the spirit of Realm. And even other baldrics as well: one baldric for having maxed out 1 skill, one for having maxed out 5 skills, etc.
This is so not compelling to me. Advancement should be tied to experience and not possessions in my opinion. It just doesn't make sense that someone would be better just because they possess a better item. Just because you have a better car doesn't make you a better driver!