Yeah, in a matter of speaking, a level 1 could beat a level 20 if they're skilled enough, although that would still be a rough fight.
How about this: There aren't levels, but after beating a certain amount of people at certain RANKS and such, you get a certain amount of points. These points go towards building your character, and when you get good enough you can go on assignments to increase your ranks.
Just a thought...
Levels may still be the way to go.
Levels are cool so you can see approximately how hard of a fight it will be.
But, I like the idea. We can work with it.