Adventure-Action games can fit this in easily, like Castlevania and Metroid. Even plain old platformers like Megaman have these character development milestones, though it’s less pronounced there.

Shooters already have development in the form of weapons carried, and in more recent games like Quake 4 there are even upgrades for each weapon. MoH: Airborne Assault has weapons that level up if you use them a lot. Crysis has collectible add-ons for your weapons that you find throughout the levels, though you usually don’t keep anything for too long – each level is kind of an RPG on its own, but it doesn’t carry onto the next map.

It’s similar in an RPG like WOW. Until you hit the level cap, the winner of a battle is pretty much directly determined by how much time you spend playing. So perhaps he’s saying that (as PA also suggested for Tiger), before a match you get a certain number of skill points that you can allocate as needed, emulating fully-leveled up characters? That could be cool.

Or perhaps he’s talking about transitioning into MMOFPS instead of just adding RPG elements. It’s been tried before, but IMO the hard part would be establishing a good chain of command.

Games like Team Fortress and Tribes have experimented with different classes and weapons loadouts (point allocations), and Tribes also tried to have a “commander” role to direct subordinates, but nobody used it because it didn’t feel very integrated into the action. Actually this makes me really want a Tribes MMOFPS, because it fits well with the huge bases/maps, unique loadouts/classes, destroy/repair, commander, vehicles, etc. Tribes was way ahead of its time.