I'm quite new to the server, so I'm a little hesitant to opine until I've experienced a few months of play, but I'll give you my initial thoughts and impressions as a new player (Character is only level two and I've been playing for about 2 weeks now, I think). I have a lot of things knocking around inside this strange brain of mine, and I've never been good at being concise, so please forgive me if I drone on...
Firstly, it's great to see a level 8 server. There are only a handful (comparatively) of low level servers, and those of us who like them are desperate for more choices in that vein. It's also great to see all of your very thoughtful (and good, IMO) rebalance of character classes and races (The crappy monk and half-elf are greatly improved, the munchkiny weaponmaster is tweaked to be desirable, yet balanced, and so on). 3.5 D&D has always had a terrible power creep problem and, on most servers with custom rules systems, this is magnified and exacerbates the problem, rather than fixes it (Levels advance beyond lvl 40, custom PRC's that add even more power, ridiculously overpowered magic items, stat's modified to be able to grow to over 100 or higher, etc.).
I also have great admiration for your willingness to acknowledge topics such as these, and to openly discuss and consider alternatives, while also being devoted enough to your personal vision to have the courage to say that you won't embrace any changes that would derail that vision. The unique vision that created this place is the major part of what makes it different, and what drew me (and, I think, others) to it in the first place. While I might, on occasion, disagree with certain design choices that you make, I recognize that as the module creator, those choices are yours to make- not mine (or anyone else's).
However, I will say that I have never been a fan of level advancement gatekeeping. Indeed, I have never been a fan of experience based crpg systems altogether, which- although they work quite well in tabletop play (where everyone meets as a group, at the same times, on the same day, and levels at approximately the same pace)- they lead to grinding for xp in online games. To my mind, xp grinding is counterintuitive to the concept of roleplay.
To explain what I mean, and where I'm coming from, it might be easiest to work from your own statements about the level caps purpose:
About the Level Cap’s Purpose
The level cap is meant as a suggestion for pacing. We like to see a character grow and have a recognizable story-arc, and we try to aid as best we can to help you work towards that, your character’s goals, hopes and dreams, while also being able to portray that mechanically. Given our level 8 limit, we decided to implement a level cap. This way, we can still aid characters in pacing that arc, without losing track of a sense of progression that is appropriate within the setting.
While I do see where you are coming from here, I think some things are worth considering. Firstly, it must be aknowledged, I think, that this is not merely a "suggestion" for pacing; it is an enforced rate of level advancement, intended to cause all characters to grow in power at roughly the same speed, relative to one another, and while I don't inherently object to this, it causes other problems that I don't care for (more on this, below).
Secondly, character growth and story arcs are not only about the growth of a character's power, how they respond to that growth, and what they do with the power that they've acquired. Yes, that is certainly a form of character growth and a certain kind of story arc and, yes- it can certainly be enriching to explore it. But there are many other kinds of character growth and story arcs one could pursue, that needn't have anything at all to do with one's level of power in the game system, and can be equally fascinating and fun, even when one is at the maximum level attainable on the server. Indeed, most everything listed below hasn't anything necessarily to do with mechanics, nor do they need to be represented by it. Just as a few examples:
Finding a long lost friend, parent, or sibling.
Becoming a trusted advisor to a king or noble.
Establishing a trading outpost in a remote wilderness location.
Founding a guild (adventuring company, street gang, merchant coster, whatever).
Opening a business (Tavern, smithy, magic school, etc.).
Researching a new spell or magic item (Cantrips are spells, and magic items can be RP' related- a magic broom that simply animates and sweeps the floor for you, as opposed to one that you can fly around on, attack with, etc.).
Investigating disappearances, thefts, or murders.
Win the love, affection, admiration, respect, or simply the acceptance of others (fellow players, interesting NPC's, so on).
Explore and map the wilderness (I do this one, myself, on a regular basis).
Uncovering secrets, hidden objects and places of ancient myth.
Acting as a spy for a foreign nation.
Becoming a famous artist or performer.
Sacrificing your personal welfare (health, wealth, life, whatever) for a noble cause.
Pursuing hedonistic pleasure and reckless fun.
Serve your god and advance its goals.
Change or abolish an unjust law.
Cure a strange disease.
Avert (or fulfill) a prophecy.
Steal something (or recover a stolen item)
Immortalize (or slander and scandalize) others in song.
Now, as to this philosophy...
Currently, it is made possible to reach the highest mechanical level attainable in a little under a year. For a character to reach their ‘ultimate form’ in less time than that is something we find we cannot cater to, not while still retaining the integrity of a low-level, low-magic setting.
This is firm and clear, and I can understand the underlying desire to maintain the integrity of your server vision. However, the speed with which one advances in level has (IMO) nothing to do with whether or not a server is low-level, low-magic, low-power, or what have you. That is determined by what the maximum attainable level of power is, and what items, skills, spells, and equipment are accessible in the server environment. Is an 8th lvl character who got to 8th lvl in one week, ultimately any more powerful than an 8th lvl character who got there in 12 months? No, there is no difference. The difference is only in the time factor which it took to arrive at this point.
I think the actual concern here, even if you may not recognize it consciously, is the fear that people will run around grinding xp to attain max level, rather than RP'ing. On a server that desires to be oriented around immersive roleplaying and storytelling, I agree it is a valid concern, but I don't think gatekeeping level advancement is the way to deal with this problem. Here are a few points I feel are valid, with which you may, or may not, agree:
Whatever system is in place, dedicated roleplayers with a love of storytelling will pursue that diversion, regardless.
Powergamers, with little interest or dedication to rp and story, will pursue that diversion, regardless of the system that is in place.
A system intended to stymie the latter, will not have the desired effect, and may also potentially cause frustration, boredom, and dissatisfaction to the former, who are not the root cause of the problem.
Some players might enjoy playing an ordinary commoner that experiences a sudden apotheosis into a more powerful being (ala the classic high-fantasy trope of the peasant lad/lass discovering their the ancestor of a great hero or wizard and suddenly manifesting powers, finding mythic weapons, etc. that make them far deadlier and more powerful than the normal man), and must learn how to deal with this sudden change and the new power that they wield. The current level progression system eliminates the possibility of this kind of background/story.
Those who don't want to play out that kind of story, can simply adventure less, rp more, and advance at a pace which suits them, without enforcing a similar requirement on others.
If you're worried about power gaming, and having too many powerful characters, I would prefer one (or both) of the following solutions, instead of level advancement gatekeeping:
Lower the maximum attainable level. If you don't want a bunch of lvl 8's running around the server, cap the max level at 7 (or even lvl 6, or lvl 5, if you think it melds with your vision of the power level of the server). To compensate players who would have lvl 8 characters de-leveled, offer compensation in the way of gold, magic items, RP advantages (Titles, property, henchman, whatever). Ideally, a list of choices would be made available, so the player could pick the one they wanted.
2) Eliminate advancement over time, altogether. Set the server to a certain level (for argument, let's just say lvl 6). Have a level up bot (I've seen these on numerous servers- most of the powergaming servers, unfortunately, but they could be used to great effect on a server like this, for different reasons) that lets new characters create that lvl 6 character, along with their full character concept, upon logging into the server. Then, if the character wishes to develop different skills, powers, rp concepts related to such, etc. Allow them to access the level-up bot again, to delevel their character and select new classes/skills/feats, etc. related to roleplay, after "X" amount of time has passed.
This latter system has several advantages, in my view:
You can set the power level of the server at whatever you wish (lvl, 5, 6, 7, 8, 9, whatever)
Since characters can start at the maximum attainable level, this eliminates the need to grind for xp, thus removing that worry.
Players that would rather experience a gradual growth of power over time, or RP being an apprentice to a more powerful character, could elect to level up to a lower point (start at level 2 or 3, just as an example) and earn levels gradually, over time, as per normal.
Most characters would be at roughly the same level of power, making it very easy to adventure with most any group, without having to worry about weaker characters dying, or stronger characters hogging the action/spotlight.
It would make it extraordinarily more simple for DM's to plan and balance events and the adventures that ensue, to make sure everyone has a good time and is suitably challenged.
It reflects most of the characters we see in fantasy fiction, who do not usually become vastly more powerful over time, in most cases. Aragorn, Conan, Fafhrd and the Grey Mouser, Jon Snow, are all compelling characters with interesting histories and adventures they've taken part in, but throughout the books we read, we see that they have relatively the same abilities throughout these stories. Any power they gain, is largely a matter of event's they were caught up in (RP, in our terms), rather than a sudden- or even gradual- boost of abilities. Becoming a being of mythic power is mostly a D&D trope, and we need not be slavishly devoted to it for the purposes of this server. And if there are characters that wish to pursue such a goal, there are ways to accommodate it without hamstringing the other players.
Anyway, there's my two Sardil's worth, for what it's worth.