Hate it?

[*Laurelindo*]

I don't understand why so many people dislike the Password system.
It really allows for much more interactivity between the NPC's in the game, if you hear about a critical plot item then you can simply learn the word and ask about it around the entire world.
In fact I think any game focused on exploration should have a system like this - makes sense, doesn't it?

And as for the leveling system - yeah, I agree that it becomes kind of inconvenient when you actually try to deliberately increase your stats, but it does work very well for the most part during the exploration parts of the game.
You are supposed to battle normally and let the leveling go by itself, because the game tends to improve your stats whenever you seem to need it.
One early advice I can give you is to skip the boat rides in the beginning of the game - walk between every town instead, this will give you a lot of opportunities to spam spells like Safe and Shell without ever needing to glitch-level them.
I even walk all the way to the Warship, great leveling along the way and you can simply keep a Cottage ready so you can restore yourself right before entering the Warship.