I’ve actually spent a fair amount of time lately looking at old D&D stuff, including things like Planescape, Dark Sun, AD&D 1st Edition, and some old modules like Temple of Elemental Evil. While reading through T1, something in the text jumped out at me. Specifically, in the Dungeon Master’s section, this passage occurs amid a brief discussion the players’ power level:
You should sharply limit the amount of gear and treasure they can bring to the village (as you will understand when you read the adventure). If your group of players has had exceptional luck, simply engineer a minor encounter or two along the way—light-fingered leprechauns, a thief or two, or perhaps some brigands—to rid them of a few of those cumbersome gems, coins, and magical items.
Good times, eh?
As much as I love some of the old D&D stuff, this sort of thing reminds me of how far we’ve come (despite the overall decline of the industry, perceived or otherwise). The relationship between rules, the DM, and the players have evolved quite a bit since then, and this is one example.
All right, so what should you do instead? I don’t want to get too much into this. I’m guessing this scenario is somewhat less likely these days, though perhaps this reveals something about the assumed style of play. These days, I would probably create a new character, but my impression is that people tended to stick with their character. It makes a certain amount of sense, and I’ve thought a bit about a similar structure of play. More on that later, perhaps!
So, assuming someone wants to bring an existing, over-leveled character with them, instead of taking stuff away, I would probably just ask them to play something else and try to relate this person to their character somehow. Maybe they’re a relative or acquaintance. Alternatively, they could power down their PC and play this like it’s in the PC’s past (though most likely without whatever accumulated wealth and magic items the over-leveled character had).