Keep the system as it is now for lvl 1-20, since there is sorta balance and equality at these levels anyways. then at lvl 21 give the chars a quest that propels them into a new character set of rules once you finish The Epic Quest.
However, make there be an epic quest for each faction diety (this requires serious time, for coders, i know). Once a char, above lvl 20 finishes the epic quest, then that char has reached ascension. From that point on the character should be given what I call the Epic rule set.
The Epic ruleset would have unnerfed spells, better item availability, better weapons, better skills, so forth. A just reward for truly going through an EPIC quest.
Conditions:
Have to be lvl 21
More to be added once more people give me ideas
Epic Theory:
When a character turns epic it's supposed to mean something. The chars are truly god like or on their way to being god like. At this fated juncture in a hero's path, the epic char should be given the ability to truly ascend to epic portions. After completing a truly hard task, then the character would be given an item to symbolize his ascension to the truly Epic
Next, make the epic item, more like a badge of honor (an actual item that is no drop, assuming that the no drop bug was fixed). The item can't be stolen. The epic char would be able to have normal items at a decreased price in their own factions (because of their epic qualities, and reputation). Also, this would open up Epic lvl quests (in areas that only epic chars can get access to). Also, this could open up a secret shop in Avendell that only epic chars have access to which give really Awesomly powered weapons for sale. This I think would be really cool.
Problems:
Most likely PvP would be ridiculous between epic chars and non epic chars...Which is the way it should be.
Could lead to more griefing...however, it could also lead to epic leagues of justice designed to take out griefers.
Could make the game a whole lot harder for the devs to code. ( I know guys, but i think the tradeoffs could be Monumental

This is more towards the end of beta in my mind. But would be fun to see if it was implemented.
This is my preliminary sketch of the epic theory. Think of it as a massive reward for finishing a very hard quest at lvl 21. Something like slaying the ancient dragon in PnP. This could solve all the nerfing problems and so forth. If people knew they had something like this to look forward to at lvl 21...I think people would work HARD to get there. And I mean seriously...this should be an EPIC quest....tanamount to killing g1, back in the OLDE days, with a party of 8 required and tons of ressurects and heals needed.