I actually enjoy playing Morrowind, the attribute system is similar to Wizardry 8's system. It always used to annoy me that Endurance is not retroactive. In other words, if you don't invest in Endurance early on, you're losing hit points each level up. I like how in W8, Piety and Vitality are retroactive. You never end up losing hit points, stamina, or spell points for investing in an attribute later on, although I guess the small penalty is getting that expert skill later.

Thing is, aside from not being turn-based (when I think RPG I think turn-based, which is part of the reason I personally define RPG to exclude action games), there are still a few things I don't like about Morrowind and its growth system:
* In addition to Endurance not being retroactive, there's the way stat growth is handled at level up, where the skill increases gained during level up depend on your actions during that level. To avoid losing stat points at each level, you need to play in a counter-intuitive and rather unfun manner. I'd prefer it if stat growth was like Wizardry 8 (stats independent of skill increases), or if stat growth were decoupled from leveling entirely (which would make things more like SaGa 1/2/Frontier 1).
* The way the class system works is ugly in a few respects, particularly how, if you want to reach a higher level, it's best to choose a class that does not synergize with the race, and to choose a specialization that doesn't match the character's class skills. I think it would have been better if classes only affected starting abilities, or if they had effects that could not be replicated through skill increases (like if the Atronach birthsign power had instead been given to the Sorcerer class, like in Arena).
* To improve a high level skill takes more skill experience. However, harder challenges don't give more skill XP than easier ones (so, for example, casting a high level spell gives the same experience as a weak starter spell). This makes it rather annoying to get the last ranks in a skill. (At least, unlike in Oblivion, there isn't a huge difference between 99 and 100 in a skill.)
* (Edit) A failed attempt gives you no skill experience. This makes it annoying to increase low skills, and also means there's even less incentive to attempting harder challenges.

Note that most of these comments apply to Oblivion as well.

(Side note: In Arena, your Endurance at the time of level up affects HP growth. However, unlike in Morrowind/Oblivion, temporary boosts to the stat apply, so if you fortify your Endurance before each level up, you'll end up with more HP. I don't know the situation in Daggerfall.)

As a side note, I am designing an RPG of my own, and may actually implement it if I get into the right state of mind.

From what I remember reading from a Russian forum (via Google Translate), skill increases work something like this:
* After each action, you get a number of chances to get skill experience; this depends on the difficulty of the task, and whether the task failed or succeeded. (Note that, apparently, non-spell actions give you fewer chances on a failure; for spells, it's the reverse.)
* Each chance to get skill experience is checked separately. I believe the chance is something like (100 - base value in skill). This means that, at 99 skill you are only half as likely to get skill experience as at 98.
* Once you earn enough skill experience, you gain a point in the skill. This happens immediately, even if you're still in the middle of combat. (The game only gives you skill increase messages when combat concludes, but you get the skill increase immediately.)

The mechanics you two are talking about are why I love Wizardry 8 so much and one of the things I mod in morrowind. I have a list of mods I use and looking at them I find that they make the game much more like wizardry 8 in how it handles level up.

I'm pretty sure that several factors go into skill increases. The level of the spell, the spell point cost, the power level cast at, and of course the approach to 100 gets exponentially harder. This is why my Gadgeteer is struggling. She has Engineering skill at 99, I probably cast the Lightning Rod 100 times, and that last point eludes me. It seems luck based, but I know it can happen. My Bard made it to 100 Music just by casting Sleep and Bless instruments many times.
Edit: I have half and half right now. 12 out of 24 magic realm skills are at 100, and 12 are at 99. Grinding in the Monastery grants skill ups, as well as experience.
The Bard, Gadgeteer, Priest, and Alchemist are getting decent at melee, in preparation for the Arnika Road and Arnika melee swarms. I'm grateful that the Arnika Road and Arnika enemies are not casters (even if it is, a low level Sige?).

(Repost attempt because the previous posting attempt didn't show up for some reason.)

Those factors affect the number of chances to gain skill experience. Thing is, however, that each chance is random, and at higher skill levels (especially at 99), the chance gets small.

To put it another way, what you're trying to do is similar to rolling percentile die and rolling a specific value. When you use more powerful spells, you get more rolls of the dice. Furthermore, when you do manage to roll that value, you don't get the increase outright; rather, you get a point added to the hidden stat experience value, and only when that value reaches a certain amount will you get the skill increase.

So yes, the increase is random, and yes, doing things like casting more powerful spells will give you faster growth by letting you roll the dice more times per casting. (Note that this mechanic makes it so that you won't have your skill increase twice in a row, except maybe if you do something like failing to cast a powerful spell when your realm skill is 0 or 1.)

(I believe the controlling attribute(s) of the skill may affect the chance of getting skill experience, as well.)

By the way, the fastest way I've found to get those last few points of Music on a Bard is to give her the Renaissance Lute, have her use it on herself, and then press the key(s) bound to "use last item" repeatedly. (Note: While it won't happen here, note that using "use last item" to use the last copy of a consumable in the stack, or the last charge of an item that disappears when its last charge is used, will crash the game with an assertion.)

I'm playing with my personal code of ethics. No spamming Heal Wounds in the Arnika fire pit, no spamming Cure Lesser Conditions in the Monastery coffin, no repeatedly casting Divine Trap on a chest, no repeatedly playing with locks, etc.
I only let my party rest, and cast buffs, if I am running low on spell points. This means, one really good battle (4 level 14 Flesheater Slimes is the best outcome), or a bunch of low level trash.
The reason I have 24 realm skills being worked on is because I am ignoring a few things. The Alchemist has no Mental Magic realm. The Priest's Mental Magic realm is useless in battle right now (Charm, Divine Trap, Identify Item, Sane Mind). So I subtract those two.
The Bard has Music, the Gadgeteer has Engineering, the Priest and Alchemist have Fire, Water, Air, Earth, Divine, the Psionic and Mage have all six to work on.
The Priest's Mental Realm would be the easiest to increase in Arnika, in He'Li's Bar, because I actually have a door to close, to prevent enemies from interrupting my sleep. Burz has no such door, and his potions aren't as numerous, or as great. I would think that identifying Items would be the least cheesy way for my Priest to max out his Mental Magic realm, after mixing potions for profit (win win).
I'm doing it the "right way" basically.
Edit: I think the problem is that using the Lightning Rod is only casting level 1 Energy Blast spell. If I was using the Jackhammer (Earthquake level 7 spell), the increase would probably have happened a lot sooner. Regardless, getting that last point from 99 skill to 100 is the hardest thing to do in the game, even with good controlling attributes, so it's a persistence thing. This is why I save after every battle, because I could be one spell or gadget usage away from 100 skill. My grinding is almost over. As I said before, 12 out of the 24 realm skills being worked are already at 100 skill.
Double Edit: I managed to get my Gadgeteer's Engineering skill to 100 by repeatedly casting the Lightning Rod at enemies. There are only 7 realms left.
Triple Edit: All realm skills, with the exception of the Priest's Mental Realm (will be worked on in Arnika, with Identify Item, after mixing potions for profit), are at 100. I'm about halfway to level 21, where I will get a better treasure class.

Level 21:
Priest: Set/Return to Portal
Alchemist: Set/Return to Portal
Psionic: Hex
Mage: Set/Return to Portal
Please forgive me for this long, autistic rant. It's been almost a month since I've leveled. It took about 1.8 million experience points to get to this level. At least I get a better treasure class when I reach new areas.
Everybody gets portal spells! This greatly increases air magic spell points. The Psionic got Set/Return to Portal a long time ago, and he set a portal at Cierdan's Tomb, so I can portal in and out later.
Magic skills: The Bard has 100 Music skill, the Gadgeteer has 100 Engineering skill. Divinity, Alchemy, Psionics, and Wizardry are at 100 natural skill, 125 with the class bonus. All realm skills are at 100, except for the Priest's Mental Magic realm, which will be worked on in Arnika, casting Identify Item, after mixing potions for profit. Sane Mind would be nice to be able to cast later on.
Ranged skills: The Bard and Gadgeteer have reached the "soft cap" (which means 75 skill or greater, after which no points can be put into a skill at level up) for Ranged Combat and Bow skills. The 4 casters have reached the soft cap for Ranged Combat and Throwing and Sling skills. Side note: The Alchemist is without a sling. He uses Feather Darts sometimes. Can he dual throw? I think he would take maximum penalties for doing so, as casters get no Dual Weapons skill, similar to a Priest trying to dual wield the Mauler and Diamond Eyes.
Melee skills: The Bard and Gadgeteer have reached the soft cap on Close Combat, Sword, and Shield skills. The Priest has reached the soft cap on Close Combat, Mace and Flail, and Shield skills. The Alchemist has reached the soft cap on Close Combat and Staff and Wand skills (he has the same weapon selection as the Psionic and Mage, only physically is much tougher, making him the best candidate of the 3 for the Staff of Doom. He might even be able to hold a flank). The Psionic and Mage are ignoring melee combat, as they are too weak. It's magic and slings for them.
Special skills: Everybody is at 100 Mythology, after fighting so many battles, no need to worry there. The Mage reached the soft cap for Artifacts. The Gadgeteer reached the soft cap for Locks and Traps. The Bard is at 74 Communication, after forcing, repeatedly, skill increases from both Burz and Altheides. The "magic number" is 80 natural skill, after the 25 percent class bonus of 20 skill points kicks in, I'm at 100 Communication skill, which will get me the best prices, I believe. This means that I have to force 6 skill points in Communication from NPCs. Hopefully I can get around 3 skill points from NPCs in Arnika, this would put me halfway to the goal.
Expert skills: The 4 casters have at least 60 skill points in Snake Speed, giving them +4 to initiative. The Bard and Gadgeteer have at least 80 skill points in Reflextion, giving them +5 to armor class bonus. They also have at least 40 points in Power Strike, giving them +3 to hit (and penetrate? The skill description hints at this, though this never shows up in the character screen.) in melee combat. These skills seem to have a 20 point threshold, in which you get 1 point for unlocking it, and then 1 for every 20 skill points. So the breakpoints are: 0, 20, 40, 60, 80, 100. The max is 6.
As a side note, what happened to my rep points? I managed to get one star, but now everybody is the same.
Also, I want to create a super-Bard, as she is the physically toughest one in my party. Feet: Ariel's Slippers. Legs: Oberon's Greaves. Body: Caliban's Cuirass. Cloak: Prospero's Cloak. Weapon: Mercucio's Blade. Miscellaneous slots: Ring of the Road (two are not necessary, as you hit 125 Strength with just one, combined with Caliban's Cuirass. Anything over 125 is wasted, also, the Amulet of Healing, sold by Crock, is a better second choice.) This leaves headgear, gloves, and a shield as extras. The best headgear a Bard can get is a Bascinet (+6 AC, sold by Antone, or dropped by slimes in the Monastery, lucky me). The Puck's Cap is not specifically a Bard item, but it does give +10 to Music, at the cost of -10 Piety. This leaves me with a question: If somehow my Bard got to 100 Piety (which she is not doing), unlocking Iron Will, would equipping the Puck's Cap freeze Iron Will, since Piety would now be at 90? The best gloves are Mail Mittens (+6 AC), and the best shield is the Heater Shield (+3 AC, modified by Shield skill of 75, another +3 AC, for a total of +6 AC). With her high Shield skill and high Reflextion skill, she could still use her lightweight specialty gear, and keep a low encumberance.
I can't say the same for the Gadgeteer. Her only specialty gear is the Tinker's Carryall Bracers, which gives +20 to Strength. Same as the Bard, two seems pointless, as she can get to 120 Strength with just one, and an Amulet of Healing seems to be the better choice for slot 2 (an extra +3 AC, as well as 50% Divine resistance.) My Gadgeteer will probably wear the heaviest armor available, possibly equipping the Steelhide Breastplate.

I have successfully reached Arnika, thanks to my high level. All treasures will be at the level 21-25 range for chest items.
The Arnika Road was completely cleared. There were a few challenges, even at my high level. The Hogar went down pretty easily, after the Bard soloed it (it only scored one hit on my Bard, but she was protected by Guardian Angel.) The challenges were Queen Ants, Higardi Roustabouts, Higardi Highwayman, and of course, Higardi Brigand.
The Higardi Brigand are the top of the chart, in terms of thieves. They are guaranteed to drop an item, but are pretty tough for their level. They are a great enemy to farm. I managed to get Round Shields for my melee characters, an upgrade from Buckler Shields (+2 AC is better than +1).
If I was lower level, I would have been struggling. The Snake Speed expert skill, combined with my casters' high Speed and Senses attributes, made sure that I always moved first. The fact that I invested in Piety for extra spell points (controversial), made sure that I had enough magic to cast spells, along with, having a high level, and maxed spellbook and realm skills. Also, I made sure to pick spells that would help the realm in question.
I just picked a fight with 9 enemies, just emerging from the Savant Tower. There were: 5 Savant Gunners (no problem at this point), and 4 Savant Minion (level 22, the toughest enemy you can face in Arnika). The latter have high magic resistance, which is why I had to rely on my ranged combat skills. As you can imagine, using plain arrows, quarrels, and bullet stones was small damage against them, which is why it took a long time to defeat them. I will visit Anna immediately for better ammo.
At least I made it to Arnika, the "right way", and I never used a Magic Nectar.
Edit: The plant enemies too. They would have been tough for a lower level party.

Level 22:
Priest: Purify Air
Alchemist: Body of Stone
Psionic: Sane Mind
Mage: Element Shield
My first level up since leaving the Monastery. Arnika has been completely cleared out, except for the Mook Headquarters. I did the Cierdan's Tomb sidequest, as well. The quest rewards barely put a dent in the experience points needed to reach the next level. I did get some decent items from chests, due to my high level.
Body of Stone is an interesting spell. I never felt like I needed it before. Due to the tougher enemies spawning (level 17 Savant Berserkers, level 21 Savant Slashers, and level 22 Savant Minion,) the enemies are happy to run up to me, and fight in melee combat. Especially with the Slashers, they get a lot of swings per attack, and multiple attacks per turn. If Guardian Angel wears off, due to heavy damage taken, at least the protected character(s) will have the benefit of reduced damage taken. Those Savant machines can hit for 2X damage, and can paralyze on hit.
Edit: I also managed to get a book of Holy Water for my Priest from the Savant Orb behind the Tower. It took 4 tries, I think, which is consistent with the 1/4 chance for the book to drop.
I'm buying as many spellbooks as I can from Braffit and Anna, including spell level 6 Banish. My Priest has his Mental realm skill up to 88, by casting Identify Item at the potions that the Alchemist mixes (conveniently, I'm also a millionaire now). Those Renewal Potions generate a lot of money, and seem to increase the Mental realm nicely.
I don't think I've ever used the Body of Stone spell before. I wonder if it is similar to the Guardian Angel spell, in that it lasts a certain duration, but if enough damage is prevented from going to the protected character, the spell will dissipate?
Double Edit: The spell Body of Stone works in a way that is in tandem with Guardian Angel. It will reduce damage taken against a protected character before the damage is inflicted against Guardian Angel. Basically, if a Savant Slasher does 20 damage, the 70% damage resistance is factored in first, and the protected character gets around 5 damage dealt to Guardian Angel. Very handy.

Level 23:
Priest: Sane Mind
Alchemist: Light
Psionic: Hypnotic Lure
Mage: Hex
This level up wasn't as hard as it was in the Monastery. The Priest managed to get his Mental magic realm skill up to 98, from 88 beforehand.
At this level, level 7 spells can be cast at power level 6, in the green, with no penalty. I can only drag these grinding levels until the ultimate test, at the next level.

Don't forget that you can get Music as high as 110 points with a certain piece of equipment.

It's doubtful that that would work very well. As I said before, even a level 24 Priest with 125 Divinity skill and 100 Divine magic realm skill can't cast Restoration at power level 7 with 100% success. What makes you think that a Bard with 110 Music skill would be able to "cast" level 7 spells with her instruments with 100% success?
The Bascinet, sold by Antone, gives +6 AC to the head slot. The Puck's Cap, dropped by Higardi thieves, gives +3 AC. However, it's cursed, and gives a -10 malus to Piety (stealing stamina from my Bard). That's a hard pill to swallow.
The Bard specialty items (Ariel's Slippers, Oberon's Greaves, Caliban's Cuirass, Prospero's Cloak, Mercucio's Blade, and Ring of the Road) all give bonuses, while offering no penalties. Also, as a whole, they are lightweight, allowing my Bard to stay in white encumberance, while also giving my Bard mediocre resistance bonuses to every realm.
It's a preferance thing, everything in this game seems to be a give and a take. I wish no argument here.
Also, what do you think about my choice of an all-Human, 6-man party? I'm maxing those precious attributes, while taking no penalties that other races suffer. I did make 3 female and 3 male characters for variety (a few to please Al-Sedexus). My Psionic will max out Intelligence, Piety, Speed, and Senses (unlocking Powercast, Iron Will, Snake Speed, and Eagle Eye), by level 27, far before game completion. This is due to min-maxing. Psionics have no Strength, Dexterity, or Vitality requirements, like the other casters do. His profession requirements are in Intelligence and Senses, which actually benefit a caster (closer to Powercast and Eagle Eye, and more Initiative).
Finally, what about my choice to save those precious 5 attribute points, and leave Intelligence at 95 for my casters, waiting for the Trynton fountain? It seems to me, that I'm doing fine without Powercast. I realize that a large portion of the game (especially bosses) require you to have physical damage capabilities, which is why everybody has a ranged weapon, and most have a melee weapon as well (except the robe classes, the Psionic and Mage).

Level 25:
Priest: Superman (spellbook complete)
Alchemist: Summon Elemental
Psionic: Eye For An Eye
Mage: Web
I'm halfway to level 50! Surely in attributes, but not in total experience, due to the heavy experience required at higher levels. My Priest managed to get 100 Mental magic realm skill, due to heavy mixing and identifying of potions.
The tougher Savant Slashers and Savant Minion give good experience (around 31K each and 36K each, respectively, depending on a 6-man party). Where am I going to get that kind of experience? The Swamp is full of annoying -Mare enemies, which will run away from you half the time, and rear and cause status problems for your party. The Oozites give good experience, but they're not as reliable as Arnika enemies.
The reason I'm grinding so heavily is that I'm carrying around a party of 4 squishes, 4 casters made for magic, while ignoring other things like carry capacity, hit points, and attributes related to fighting. The Human Psionic and Mage, for example, have less than 100 hit points, even at level 25, halfway through the game. A single-target spell, like Boiling Blood, Crush, Dehydrate, etc, could end them quickly.
According to Flamestryke's site (RIP), every 5 level ups from level 1 gives a new treasure class. So, the threshold is level: 1, 6, 11, 16, 21, 26, and 31. This means better treasure potential once you reach a new area (assuming the treasure chests have a level sensor).
I just got to level 25, and level 26 is the next treasure class. The enemies in Arnika are reliable enough to get me there, although it may take a week or two.