... But yeah, level systems tend to be better imo, especially when it comes to grouping. You need a system to determine who should ideally be grouping together.
I think most MMO's (and other types?) use levels because of the above.
If a game wouldn't use levels but only XP to determine a character's skills, strength, hit-points, etc, I guess there is no way of telling who would make a good team-mate.
Also....
If the developers want you to spend hours playing their game and there is no leveling system in place, things might get ... ugly(?).
I think it would mean that you will start at 0 XP and every time you defeat something/someone you will gain a tiny amount of XP.
Like, for every mob you defeat you'll get 1 XP.
A minion? 1 XP
A lieutenant? 1 XP
A boss? 1 XP
Either that or your max XP would be somewhere around 9.99*10 to 27th power (I dunno about sciency stuff, but something like 9 Octillion XP)