The developers of MMORPGs solved the issue of progress beyond the level cap over twenty years ago, and I am not just talking about the treadmill of grinding for better gear to fight encounters that yield even better gear, even though this is a big part of why playing Pillars of Eternity beyond the level cap was extremely frustrating. The design of the loot and crafting system lead to your party not being able to look forward to any meaningful upgrades at a time even before Twin Elms, and there was nothing remarkable about the items you could gather from exploration or combat, which was designed to not yield rewards in the first place, a decision that could have been decent, had the game not focused on battles as much as it did. The expansion and soulbound items were too late, and arguably too little to make any real difference.
It probably takes more resources than a company like Owlcat would have, and probably more resources than could justifiably be spent on games like the Pathfinder games, but there could be any number of options. From adding additional ways to make encounters more difficult for those who did all the optional content and have powerful items. This can be accomplished by interacting with the game world in some natural way. Feel overpowered? Then do not deactivate the machine of elemental summoning, have an achievement for that, or some improved piece of equipment, or maybe just a new skin or some other cosmetic option that simply looks 'kewl'.
People spend literal truckloads on silly hats for Team Fortress, something I will never understand, but certainly a silly extra hat could be something worth going through some extra pain for a lot of people. All it takes is some care in encounter design, and some good ideas. It is something that is present in Wrath of the Righteous too, like with the dragon encounter mentioned earlier. There is a way to make it easier, although it is arguably necessary to do so, depending on the time one tackles the quest, and the game does impress on you that it should be handled early enough. After all, the mercenary who accompanies you make it clear, in no uncertain terms and to the point of almost breaking the fourth wall, that he will not sit around and wait for you to finish every sidequest before tackling his. For a sufficiently powerful party of a completist or someone who went the extra mile to get more levels out of the early game, maybe add a meaningful way to tackle it head on. Done.
Oh, sure, add any number of elements from the dreaded multiplayer games out there, and you will have purists running up the walls, but what has listening to them ever yielded? In the days of yore, if Bioware had listened to Karzak and made rogues the best at dual wielding and never created Ixil's Spike +6 ("There is no such thing as a +6 spear!"), would the game have been better? What happens when you listen to the vocal minority of your fanbase is Pillars of Eternity, or rather, the Deadfire sales fiasco. I see these threads and talks about what went wrong all the time, and there is a whole lot of speculation, but here's an idea: Pillars of Eternity just was not a fun game to play.
It has no +6 spear, but it was not fun. Was the loot that eventually cropped up in Baldur's Gate 2 a litle on the ludicrous side? Why, yes. Were +6 weapons against AD&D 2nd Edition rules? Yes, of course they were. Heh. I still remember the sentiment on the forums when Troika announced that they were working on a 3rd edition Temple of Elemental Evil game. What was the sentiment by some of our posters? "When this comes out, people will go Baulder's (sic!) What?"
Baulder's What, indeed. ToEE is a fine 3rd edition combat simulator, a right buggy mess and a game where the writing quality makes Owlcat's Pathfinder games appear well written. Begin the game with the neutral evil vignette for a good laugh: "You arrive at a church, which you want to burn down because you're evil and evil people burn down churches." Why, what a wonderful way to start out.
Was Pillars of Eternity better written than Baldur's Gate 2? Maybe. Arguably. Probably. Still, even twenty years after completing Baldur's Gate 2, I still can quote Irenicus' hammy, scenery chewing dialogue, I remember fighting Firkraag, Kangaxx, even the relatively pathetic Shadow Dragon. Upgrading items in both the base game and the expansion, the Cloak of Reflection (boo, boo, nerf the optional item, it makes Beholders too easy, boo boo). The companions are memorable, even if not all of them are worthwhile in combat.
Even on topic, we're talking about the dragon quest. Is it frustrating? It certainly can be, especially for a first time player. Are we taking about it? Sure, you bet. Are we still talking about playing Baldur's Gate 2 fondly?
Well:
You know what we're not talking about? Yeah, how awesome the Blunderbuss of something or another was, or what a great battle the Adra dragon was, or how memorable Thaos was while chewing the scenery in David Warner's perfectly fitting voice.