Lots to digest here, I like levels, but does the game need them, no I guess not.
The pros of gear based systems,
1. your character can get incrementally better all the time, there's no jump of "level 50 now I can use this weapon and REALLY kick some ass" I like the idea of logging on, finding some gear that helps my character some small bit, and feeling like I accomplished something, even if it is just a sword that does 1 damage point more than the one I am currently using.
2. Weapons could really feel unique, if the engrave spell or something similar exists and I name my sword, there may really be nothing else like it in the game.
3.It's easier to tweak balance issues behind the scenes if need be, you only have to deal with gear as opposed to what that gear will do at each and every level, it makes it a little harder to accidentally release a game breaking new piece of equipment.
1. If certain things are clear cut better than others than everyone starts looking the same, everyone uses the same equipment.. We were talking in another thread about everyone on Realm wearing a robe, same type of thing could happen here.
Like Stephen pointed out, there would be nothing stopping people from giving new characters good equipment and instantly skipping them to the end game without some sort of soulbinding. I don't like soul binding, I think that trade is a big part of Realm and soul binding takes away from that. I don't know what else would fix that though, unless it was something like, you get usage points from using the item. Need to have 200 usage points to equip a Wrath for instance, but at that point, it's basically levels without the name.
If everything is equipment based, then your progression comes solely from RNG and not from any type of skill or time or strategy you could be a great player and found ways to kill things easily but that doesn't guarantee you'll get any stronger.
I dunno, lots to think about.