RIXEL96'S PROFILE

/me is so late to this discussion but wants to talk anyway

I find LockeZ's idea epic on having to gain certain items to create components to level up your weapons. I've always found that if both of these systems (multiple weapons and the ability to level up weapons) to be, in lack of better words, annoying as hell. I would work and work and work to level up my weapon I have now and would'ya look at that! It's the new weapon that's weaker than the one I have now! But guess what, if I level that other one up it'll be stronger than my now weapon.
A system like that puts you one step forward and two steps back in the sense of getting a stronger weapon, however you completely jumped that obstacle by having only one weapon and many components to level it up. This alone is enough to remove regular leveling, and if you have a full set (weapon, body, head, and legs... with possible multiple accessories to more define what role the play wants each character... I'll define that better in a minute) then that adds more things to level up and the sense of achievement nhubi brought up is still there when the player levels up one of their items. It allows for more things to be leveled as you go and can even create a greater sense of achievement if you ask me.
As said before about the accessories, perhaps that could be what players can go and buy? Let's say you make every accessory some sort of stat booster (atk, def, mag, ect) the player would place the accessory of a def+ to their tank (lots of HP) and mag+ to their caster (uses lots of magic) and so on and so forth. This is just a thought on how to allow the player to boost their character in the way that they want to boost them.

As for the encounter system I think you have a good idea. Random encounters are rather dull and can become a nuisance VERY quickly. By allowing the player to go through dungeons and, as Professor_Ruffleberg said, keeping them tied into the story would keep the player entertained and not feel like they are grinding. Grinding, to me at least, makes me feel less like I am going through a story and even a step down from playing an actual game. Grinding is boring.

All in all I think you have some nice ideas and I think by taking in at least the consideration of the comments before me the game play will be great :)