I'm coming out in favor of the leveling system. As a thief, I beat the bosses 9 times out of 10 at level 3/4, with the armor, Small Feather, and about 20 tomato juices on hand (you don't even need that many, but by Lady V you're definitely rich). If you're having trouble at those levels, here's some strategy: anytime you're 30 points down, always use tomato juice. Don't cut it close ever. Also, always tickle spots: each monster's got one, find a turn to use an energy drink if need be. You'll do fine.
The problem with over-leveling is (I'm guessing, I haven't done it): the lack of new stuff to buy. If you're both lvl 6, and each doing 50 per hit, tomato juice is officially useless. You're armor is probably crap now, too. You can't buy the ultimate armor/potions yet, because all you've done is knock off about 80 fairies. You're gruff salesman is unimpressed.
So relax. Instead of thinking about power, think about strategy. Where do you need to tickle and when? How can you get the best stuff at the best times (hint: beat Aello ASAP for the harpy feather, at lvl 3 its pointless). There's no healing magic, so this is a potion intensive game. As evidence: the potions are very cheap and effective.
That isn't to say you don't fight at all. As a thief, you should be stealing constantly during the HB quest, so you'll have tons of loot. As an archer, observing everyone (even bosses on turn 1) is worth it for HP and their tickle map.
Those lvl eleventy characters you've got? I'd start over. Again, this game isn't about brute strength, its about tickling. If you're really stuck, try going with a Soldier or Slayer instead of a mage, but with proper strategy, I don't think its necessary.