Random enemy battles are determined by the party's level but story battles are always a set level. And as for armor I consider the armor you can by at the end of chapter 3 with the +stat bonuses to be superior to all of the armor you can by at the end of the game that just has +hp. I'm wearing a lot of Ch3 armor even in the post game.

(If you want to be a real wiener you level up and then steal off of the higher level enemies you encounter in random battles.)