heh, call me a dinosaur then ;-]
Work whatever level of magic/tech/psi you're comfortable with. I'm currently re-writing sections of my main world in preparation to restarting play this fall. I'm actually moving to more SteamPunkish stuff being publicly visible in parts of the region. I'm in the process of scrambling some of the power structure due to a border war between the human Imperium and the Orkish Horde. Figuring out the results of several assignation attempts and several sabotage missions on both sides. Something to do in-between divorce paperwork ;-] The State of California can be just as Byzantine as any Arduinian government...
Part of my approach is that the power game/optimized play only works if the GM is limited to a published rule system. I'm an ethical GM, I won't change something to deliberately screw over a powerful character, but will sideswipe them when they least expect it.
Foe example - Have a friend who's quite the rules lawyer and wanted to play a high tech (Traveller TL-16) marine commando who was on planet through a gate. Allowed him and his PAPA armor and FGMP-15, gave him tons of rope. Let him walk all over some pretty powerful monsters once he hooked up with the party. Then one day they ventured down to under the ruined high-tech city and started looting. Moved a sealed crypt top off and the party saw a dusty metallic layer in the bottom with several lumps in it. They were sure it was a trap. As he'd proven he was immune to just about anything he moved the thief aside and reached in. Straight into a layer of semi-dormant nano-dissembler left over from the Tech War. Such screaming and hollering as the silver goo ate his armor and weapons right off him. Left the biological (him) alone and the party managed to get the dust off before it ate his implants (see, I'm a nice GM). Bottom line is he went from the most powerful in the party to the least in one encounter. A 12th level Marine is still dangerous with even a sharpened stick, but still...
My own personal approach is to have a racial table that new characters generate on. Distributes the players across the races suitable for the local region. I allow all characters one 'special' character if they ask for it, pretty much anything goes. But, if they're not ready to play it properly or get it killed off quickly it's tough luck, that was the special. Most tend to wait and save the special until they're ready and have a good story fit. (And for Randy...not Yeti... Had a friend who wanted to play an Abominable Snowman but he couldn't figure out a story hook for it. Became a running joke.)
I'll let in off planet players but give fair warning that things may be different. Like i don't have most of the standard gods. Pray to one and get the cosmic dial tone. Godly granted powers? Yeah, right...;-]
We'll stay a minority but I doubt good GM's will die out. Craftsmanship applies to storytelling as much as anything else.