1.) Have not let the characters spend their skill points when they gain a level, and instead spend active working time in-game training in that skill to earn the points. This makes it seem less like "Oh, I've reached a new level and now I'm instantly better at this skill."
2.) If characters announce they're spending their down-time training with a weapon, I let them take +1 to-hit bonus (NOT damage bonus) with that type of weapon and ONLY that type. For example, one of the characters in my game is a female dwarf who specializes in spiked chains. Every level, I let her train for 5 hours game-time and take +1 to-hit for that weapon. If she switches to another weapon- or even another size or model of chain- she doesn't get that bonus. Also, if they train 5 hours in a particular skill, they can take +1 for every 5 hours they train, to a maximum of +5 per level- not +5 in each skill, but +5 spread through all skills. They have the choice to put all the points in one skill, or spread them out evenly.
(I am ignoring the max ranks rule here- It strikes me as too unrealistic for my taste. The rule is balanced, yes, but balance doesn't always mean realistic, and I like a certain level of realism in my games.)
Which brings on the issue with human vs. nonhuman characters. No one in our group wants to play a human. Why? Not because other races are more powerful, but because they're more *interesting*. Let's face it, humans are boring. We are humans, we live in a human society, we learn about human cultures and we interact with humans every single day of our lives. It gets old. This is a fantasy game, so why on *earth* would we want to continue to be the same old boring race we see and interact with every day in a fantasy world? Why should we be punished for wanting to break away from the norm? If all these other races existed in real life, trust me, the world would NOT have the precious "balance" AD&D tries so hard to maintain.
I've played too long with players to rape the rules to the point that they have perfectly "legal" characters who are completely unbalanced to the rest of the party. (This person also usually always plays fighters- not because he likes the class, but for the extra feats.) So I've given up trying to maintain balance when it comes to the characters.
Instead, I tell them to explain themselves. This is usually much harder for them than creating a character who is overpowered. If they can come with a good, legitimate, and most importantly, *believable* reason WHY their character is the way he or she is, then they can do it- and they have to convince the other players, not just me. And them I make them stick to their character description.
So far this has worked quite well for me- but if anyone can see any problems I may have in the future, let me know about them so I can find ways to counter them.