I recently posted at the Ironworks forum with this problem, but I thought I might be more likely to get a response here...

I'm hoping there will be a Might and Magic veteran amongst you who might be able to assist me with a strange phenomena that I've recently encountered in Might and Magic III!

I'm going through the game for only my first time, playing it on my Dx4-100; especially constructed for retro RPG mayhem. I've only explored three towns and have persevered so far with my party to about level 11 and 12, which consists of the following:

Dwarven Knight
Human Paladin
Human Archer
Human Ninja (should have went for Robber, probably....as I'm having trouble with chests)
Elven Cleric
Gnome Sorcerer

Things were going fairly smoothly when I'd just finished clearing out Swamp Town and started visiting the Arena on a more regular basis to make a mad dash for higher character levelling.
Wandering outside Swamp Town was a nightmare and my party would be madly mown down quicksmart by Death Locusts.

Anyway, I'd gotten up to my 40th battle in the Arena before I began to notice this strange phenomena I mentioned....after winning the 40th battle and being told that I had received 40,000 experience points, I went back to Fountain Head, intending to go up in level - but twas all in vain!
Instead of having the 40,000 added to each party member's xp tally, it had been taken away! More accurately, instead of having less xp required for the next level, it was at least 40,000 more than what it was for each character before I ventured into the Arena.

I ventured in again to test my theory and sure enough, I came out victorious in battle, but somehow 41,000 more experience required for the level. My characters are regressing somehow with each visit and not benefitting from it at all, as they should be! Arghh!

Thus I ask, is this a nasty bug? Or a product of somehow intentional game design?
Has anyone else experienced this bizarre problem?

I am considering finding a hacking tool to help give my characters a couple of levels back from all of my Arena battling...just.fruits for just labours, I say!