I have known for a long time that there are issues with the game when you reach level 256. It's easy to guess why, but I recently did some tests to see how it actually acts in different situations.
1) Somehow the level advancement code is broken. If you attempt to advance additional level at the Review Board, they will advance you even though you don't get any additional experience. Basically you get free advancement just for the asking. Your hit points and spell points will continue to go up, and after they get beyond 9999 they show up as ****, although internally it goes higher.
2) If you subsequently get hit by a spectre, vampire, or spectre mace and lose a level, you experience number loses 256 levels. For example, if you keep advancing up to level 300, and then you get hit by a Spectre, your experience goes down to what it would be if you were level 43, which is (300 - 256) - 1. Then you lose the ability to get free advancements.
3) Monks continue to hit 8 times for max damage.
4) I was able to run from things 100% of the time at level 256 in town. Although my lead Monk had Luck 18 and was wearing a luckshield, so it probably wasn't a conclusive test.
I'm going to try it with a magic user and see how much damage their MindFist does.
5) Your initiative continues to increase, even with low battle count. At level 125 or so, Monks are faster than Demon Lords and even Thors. Fighters, Paladins, and Hunters need to be level 250 or so to beat the Thor, Bards and Rogues need to be 500, and magic users, around 1000.
6) This makes it so you are pretty much invincible. You can win any fight without anyone getting hit. You just Hypnotic Image or Mage Star the front 2 groups, and maybe any opponents on the back row that might cast spells or do group damage. Although magic users or paladins level 36 or up with a luckshield will resist any spell or breath weapon.
7) At level 1000, Wizards often do 8,000+ damage with Mind Fist. Typically, 4,000-7,000. Once in a while less than 4,000 or over 9,000. I have seen over 10,000 damage, but it is rare.
About level 3500 or so, your Mind Fist starts to do negative damage at times. At level 7600 or so for wizards, your hit points start showing up negative on the main screen. A few levels later, hit points roll over.