Title says it all, but effectively a way to solve the "empty level" issues, is to allow anyone to play anything at the start of the game up to a maximum of +5 LA (So long as the hit dice remains under the starting level all players can begin at, so drow/etc are fine in a level 1 game).

My idea is to make LA a exp penalty for a number of levels beyond 1st equal to the LA? The penalty would be 10% per 1 LA. So a drow would gain a -20% exp penalty threwout level 1-3 (1+2) representing the ease it has in surviving at that level, but the penalty would fade at moment they hit level 4 where encounters begin to be a potential threat. There comrads would be level 5-6 by then, and they won't suffer late game because 2k-4k exp means nothing at higher levels and they will slowly catch back up.

Thoughts? While this issue does not fix the pain that is item crafting/exp costs due to lack of precious exp, it does address the issue of mid/late game "empty' levels being so absurdly difficult. Of course, allowing a +1/higher la race at character creation is always up to the DM, and sadly I can't control that with any houserule rule.

Does the math work out with that? Like by the time the non-LA races catch up, will the LA race be that level?

Like if one player was getting the penalty for a LA of two, does he end up reaching ECL 4 at the same time as the characters with no level adjustment (assuming they're awarded the same amount of XP apart from the percentile adjustment)?

That is up to the dm, after all, the person with the exp penalty can still get normal rp-xp from doing amazing acts/heroic moments of badass/etc, and could easily stay on par with a average player with no exp penalty. I have not done the hard math on this however, but asuming they get the same exact exp, and use the same exp progression/average, they would be 1-2 levels behind a normal player until they reach there threshold, but no more then that.

I might have to buff the exp penalty, if anything, thinking about it a Tiefling would only lose out on 100 exp with this method when they hit level 2 and they would be on par with the other races from then on out. Maybe a set 50% exp penalty for 1 + LA in levels? So a tiefling would lose 500 exp, a drow would lose 1500 exp before they no longer got a exp penalty.

A simple solution could be to just prevent that LA character from gaining experience until the party reaches the adjustment, then everyone levels up at once.

There was a pretty good analysis of this very idea by Sean K. Reynolds. Now sunsetting this at level 4 means you avoid the penalizing of characters at high level, but as Reynolds points out, at low levels where the racial powers are most beneficial, the penalty is essentially meaningless.

Alternatively, just force the players to pay out some XP at a determined date. Sort of like a loan or a mortgage - refusing to pay the XP (say, when they want to level up when the other players are leveling), means that the amount they have to pay later is increased (say, 5-10%). It helps to write all this down.

So +5 LA is 5 levels. Starting from 1st level (these are empty levels after all), the pay out would be 1000 + 3000 + 5000 + 10,000 + 20,000 (right? haven't checked the table).

The total necessary pay out (assuming all the numbers are correct for leveling from 1st to 6th level - the 5 level gap of +5 LA) would therefore be 39,000 XP (not including interest that accrues from failing to pay when the GM decides it's time to pay).

To be fair, the GM can roll the dice to determine when the player has to pay and the percentage they pay can be a percentage die. Say, every in-game day, there's a 10% chance the player has to pay the needed XP - this increases by another 10 or 5% each following day.

A player can be in-debt to a GM. In this way, they might have to run solo adventures or be especially vulnerable to GM wrath (until they roll another character with less or no LA).
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Also, what's up with the OP's avatar? :O

One thing I've seen that seems to work better(more punishing at early levels where LA matters most) is permanent, nonlethal negative levels which you buy off by gaining LA in lieu of a level.

You'd have to explain how that works.

I'm guessing:

For each point of LA, take one negative level though those negative levels do not result in an actual loss of level or kill the creature, nor can they be removed / restored in any way expect by buy-off.

A LA 2 race would therefore impose:
-2 on all skill and ability checks
-2 on all attacks and saves
-10 HP
-2 effective level for level dependent abilities
-2 spell slot of highest level lost

Doesn't so much work for starting at character level 1 with the HP penalty, let alone trying to play a caster of any sort.