Niggles: well thats a bugger. Be forced to complete quests to get anywhere then :/
Yeah I don't like that either, seeing as it makes the game extremely "narrative-driven", ie you need to progress the story to progress your characters. I like the freedom to search out every look and cranny to kill all the monsters, or just plain grind on respawning creatures so you can become as powerful as you like.
Also, just my opinion but killing a monster and then not getting any XP just feels wrong, like the game isn't rewarding you for something it should be, makes combat feel less meaningful.