Ordinarily, I find level limits distasteful, especially if they are not applied to all character types equally, but under certain circumstances they can be used in a constructive (rather than an arbitrary and annoying) manner. This depends on the setting. I initially proposed A Case for Demi-Human Level Limits in which demi-humans such as elves could achieve any level in their own faerie realm (sort of a demi-plane with close connections to the Prime Material Plane), but were limited whenever they ventured away from it. Suppose we take the idea further. Suppose all characters have unlimited potential to rise in levels in their own reality, but are limited outside of it. In worlds influenced by Poul Anderson's cosmology of an active war between Law and Chaos with observable geographic boundaries between the two, we might conjecture that anyone born in a magic-drenched Chaotic land (such as an Andersonian elf) is restricted to a certain level when on Lawful soil, whereas anyone native to a mundane Lawful land (such as a human) is equally restricted when trodding on Chaotic turf. There is something about each of these environments that causes natives to flourish and aliens to wane. Characters who return to their native land may once again function at their normal level. (I would rule that hit points would be exempt from the effects of level limitation for the sake of reduced bookkeeping.)
This would have tangible effects on a dualistic fantasy world. Very powerful individuals would avoid leaving their land lest they be deprived of their power and would rely on their lessers (who, due to their lower levels, would not be penalized) to achieve their goals in alien territories. Lawful and Chaotic realms would constantly seek to extend their boundaries at the expense of the other, for their denizens cannot coexist and prosper for long. Perhaps the worst thing that can happen to a realm is to have its most powerful protector slain, lured away, or held captive in an opposite realm. Not only is that protector weakened in power by the distance, but maybe the realm itself suffers an actual loss in its inherent Law or Chaos, thus making it more vulnerable to incursions and conquest by its opposite. Maybe the power of Law and Chaos in a land is generated by the height of the levels the legendry of its most powerful inhabitants. Thus we have stories of human heroes being lured into Fairyland to dream their lives away and leave their kingdom open to invasion by hostile fairyfolk; and stories of expeditions to kidnap or assassinate the elven royalty who hold sway in the forest in order to open their lands up to mining or farming. A precarious balance is maintained when the low to medium level beings of Law and Chaos spar with one another at home or abroad, but it tips when the greatest beings die or leave their realm. If the greater (high level) beings are depleted in one realm, but not the other, then the depleted realm's alignment will change to that of its victorious neighbor. If, however, both realms are depleted of all their greater beings and protectors, then both will decline and lapse into a state of Neutrality where neither Law nor Chaos is ascendant and either all beings have level limits or no beings have level limits.
Outside of a coherent setting-based reason for level limits, I still prefer not to limit levels.