I wouldn't say this is completely accurate. The main benefit to leveling up isn't so much the stats you get doing it. Leveling up gives you more HP/MP, slightly higher attributes, more combat and magic skills to grind to cap, but most importantly: access to higher level gear.
The thing is, you're assuming that the difference between two people remains the same given the same merits but different gear. This can't be further from the truth: in fact, the difference between two equally merited characters in the same categories but different gear becomes even wider.
Compare for instance, two Warriors, both at level 99 with full Double Attack merits. One warrior gears completely in STR and attack, the other warrior gears with 25.4% haste. Which do you think benefits more from the Double Attack merits? Obviously, the guy in Haste, because his increased hit frequency lends itself to more Double Attacks. The gap between these two players increases.
While this above example is pretty extreme in the sense that no sane WAR would ever gear in zero haste (or even could given the current selection of easily available gear), it nonetheless illustrates the point that the player with better gear outperforms the player without. The idea with merits is that they are small augmentations to your character, as it always has been, and those augmentations become even greater considering the gear that you have.
You might have noticed how absolutely every item that has an item level is being addressed in the version update in a week. Notice how they all have major improvements to stats like combat skill and evasion? Even the Bayld-bought gear is being pretty drastically improved in terms of skill increases. These are stats you would naturally acquire through leveling up. This update in particular is designed to lessen that gap between the different tiers of players, while still keeping obvious tiering intact and rewarding the players who complete the high-end content.
The only thing concerning about item levels as a method to controlling character growth is encumbrance effects... But as we know given SE's history with making mobs like Absolute Virtue and Pandemonium Warden, SE does like making their cheap mobs...
This is where I begin agreeing with you, but the honest realization you need to consider is that character growth has always been 90% or more gear-dependent. The one exception to this rule was the Abyssea era, where much of the gear was pretty sidegrade in comparison to previously existing gear, but the main character "growth" was controlled by indefinite enhancing effects like atma and abyssite that offered a multitude of effects much greater than both leveling up and gearing up combined.
Overall, I would say that the one thing I would like to see SE do to address natural character growth in terms of EXP/Merits or whatever are player HP levels. Its not fun to be one-shot all the time, and introducing mobs that can do this without restriction begs for cheap strategies like the current scholar stun-locking players currently use to get things done.