I find this post really strange, there are many games with similar systems (very hard difficulty, but with gear and powers, group play). A decent chunk of later mmorpgs are this way. A lot of the very high control realtime coop games are this way (Vindictus is a good example, the characters have much much more insane powers and it plays well with the challenges in the game, which are insanely difficult at the highest level).
As long as there are enough players at each tier of gear/power/skill/experience, this is not a problem. Just play with the others (matchmaking helps this, but natural progression from difficulty helps this as well as higher players will move up).
Their true end game is cosmetics, there is no arms race in that regard. 600 power with perfect rolls is the cap, and it is not particularly difficult to reach. That said, I don’t see a big problem with constant progression of gear, it is functional in many games, as long as the pace is relatively slow and thought through. In this game, in terms of power, I’d rather see lots of unique sidegrades, like interesting weapons or effects that are not strictly better than others but offer a new style. BH’s switching between ranged and melee constantly is an example of a very different playstyle that I find fun.
Increasing difficulty with gear without it just being a boring numbers game is definitely a challenge, but game design is challenging. I think their current solution with a relatively low cap and cosmetics for further rewards works well in this regard.