In any case, I have no PnP experience (or negligeable, anyway).
I have no allegiance to roleplaying in and of itself. It holds no point at all to me. This is why I can't stand games like Morrowind, where everything is all pointless 'roleplaying'.
That's why I will always favor the second type of character progression. The first one is only a tool to me, and as long as it's somewhat enjoyable and does not get in the way of the second one, then I'll be fine with it. The problem arises when the game's design attributes importance only to the first type. Then the RPG fails.
Essentially, I want roleplaying within a storytelling context. If the context isn't there, the roleplaying is meaningless. Heck, this is why I've been toying around in making a storytelling game with minimal use of stats.
PST. Dak'kon. Circle of Zerthimon.
PST didn't touch me because of its awesome character stats system. In fact, that sucked. lol just pump everything into wis/int/cha. Yet, that character progression was quite useful, and ensures that the progression through the game flowed well. Let's look at the circle. As your wisdom goes up, you unlock more layers. This allows that particular plot to be unfolded through the span of the entire game, rather than just solve it all in one hour. The stats in this case helped. The stats in themselves meant nothing. Also, it wouldn't have been impossible to recreate that experience without stats. The important point is that the stats prevented you from doing EVERYTHING from the getgo. Then, the rest comes down to design, and preventing the player from achieving that without resorting to stats. Link it to the plot progression itself, for example.