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Kainzo Here's some thoughts. Add an integer called level to the class com.herocraftonline.heroes.characters.Monster. Add the appropriate getters, setters, and a new constructor that would take an integer argument for level and compute damage, health, and experience based off that level.
Each time the game spawns a monster, you throw it into the CharacterManager with the level determined by an expression similar to this one:
level = 256-Math.random()*location.getY()
The configuration files would contain Monster base health, base damage, health gain per level, damage gain per level, experience gain per level. You might want to add loot in there as well.
Edit: @
ninjasalad
Just missed your post. My recommendation for this making mob levels show up to the skill "scan" that casters, healers, and scribes have.
It may also be possible to add some code to give them various names depending on level. I saw a constructor for monsters in Heroes to declare a name. You could change these names based on levels with a simple if-else tree, but I'm not sure if those names will show up when you use skills on them