2. Those many of you who don't even give out ExP and instead just level the party up, how do you account for characters who just don't do their part? Or who missed a significant part of an adventure (got captured, wandered off, lost their mind, etc.)? And, how do you account for developments that cause someone to *gain* a level e.g. lucky pull from a Deck of Many Things?
That's easy: I don't. All I expect is that players have fun and don't harm the fun of the group. I do not care if they manage that by their characters dungeon crawling, or being involved in a prison break, or by simply goofing off.
Maybe this is all an issue with the faster level advancement of 3e-4e games; where missing out a few batches of ExP can quickly put you a level or two behind. (then again, a death-revival cycle in 3e has the same effect) I find in 1e that giving out ExP individually by encounter tends to separate the wheat from the chaff over the long run; those characters that get in there and give 'er do better than those who stand back and watch, and justice is served.
I'd not know - we play weekly, and we advance about 1 level per year these days. I also do not consider anyone "wheat" or "chaff" depending on how effective their characters are, or how much they kill.
The other assumption I'm making here (and I'll guess I'm making it in error, given what I've read so far) is that one of the things you're doing as DM is keeping notes during a session of exactly who got involved in what. This makes it easy to figure out ExP later; just divide the total available ExP for each given encounter by the number of characters involved in it, and repeat for each encounter. But you have to keep the notes...
I keep such notes (and type up a detailed campaign chronicle each week), but I'd never bother to use them to deal out exp.