That's not quite correct. Their actions will control when they gain levels. What it really does is eliminating the micro-management of getting xp for every single action in favour of looking at their actions at the macro-level.
True; the decisions the players make will still control level gain. From the player's point of view, though, they don't know which actions will control when they gain levels. They'll have to guess. It's an uninformed decision, so you face the same problem as you do in a dungeon when you come to a T-junction and there's no sound or wind or smell or markings leading down one way or the other: you might as well flip a coin. There's no real choice to be made there.
(It's not that bad since the DM is a human, you probably know him well, you've probably talked about the game beforehand, etc. I exaggerate to illuminate my point.)
What I wanted to get away from was their 3e behaviour: "Guys, I only need 200xp to level up, let's try to find some random encounter before we continue with the adventure."
My point of view is that is
exactly what the XP system is trying to get you to do. It's providing a frame of reference upon which the players can assign meaning to their choices. (Since XP is tied to the game world in the way that stronger and more menacing monsters are worth more XP, there's another layer of depth there.)
If you find "let's get a random encounter to get XP" doesn't work for your goals of play, then you
change the XP system to reward what you want. Take all those actions that you'd normally level up the PCs for and make a list. Present that list to the players so they have information upon which they can base their decisions in the game.
The more closely those XP-rewarding actions are to what the players want to do, the more you reinforce what you've all come to the table to do. If the character growth phase of XP (i.e. when you get enough XP to level up) deepens the experience, you have a positive feedback loop. Do what you enjoy to enhance and deepen the experience of what you enjoy!
(Having different "tiers" of XP awards for different actions is a good way to do this; once you hit a certain point, a new facet of game play opens up - more complex and more compelling, but along the same lines. This would look something like an XP system where you get XP by defeating threats to the town, making personal connections in the town, climbing to a position of leadership; at a certain point, you start getting XP for leading armies, forging treaties, and massive engineering projects. At level one you talk to the innkeeper, take out the nearby goblins, and train the militia; at level 15 you talk to the duke in the next kingdom over, lead a scouting patrol to find the dragon's secret lair, and build castles along the borderlands.)
For example: in my hack, one of the easiest ways to get a boatload of XP is to take an exploration Quest. You, as a player, set your PC's Quest to explore a dangerous location; when you explore it, you get Minor Quest XP equal to the location's level. (One PC in a recent game decided to explore the Moon - in general, level 10 - and decided to check out some level 14 ruins. Lots of XP, nearly died. Very cool.)
I wanted to emphasize exploration of the game world and reward risk. That Quest rule pushes that sort of game play. I also want to challenge the players, so I didn't force it; the players decide what they want to do. "Smart" players, in these terms, are going to be encountering new and exciting things about the game world, and they will reap the rewards; more cautious players will not, and see their more adventurous peers outpace them.
edit: Obviously I think that XP work well, but this thread is illuminating because most people say that no XP works better for them. I (obviously) don't get why that works out, but I recognize that it does. I'm not trying to say that XP is always better for everyone. (Though it probably sounds like that!) I'm trying to give my point of view in order to see why it
doesn't work.
The biggest feature I can see is that it leads to more DM-driven play. Am I wrong there?