The way to make it used widely is to increase drop rates based on challenge. If 20's do Chronoscope on "normal" (level 6-8); like some currently do -- they get the worst possible drop rate. If they run it at 20 they get a normal drop rate, 25 slightly higher, 30 (or whatever the ultimately challenging setting) and they get roughly double or triple the drop rate on rare named items. Retrofit many of the older quests less run quests; with this new "upgradable loot" mechanic, and tie the crafting ingredients in with the minimum level needed and quest level.
So in other words if you need the level 16 "ingredient" to upgrade your level 12 cloak? You have to run the quest at level 16 or higher.
The right drop ratio boost would have to be reached. It needs to be high enough that people who hate grinding the carp out of a completely challenge-devoid quest (like DQ, Titan or Reaver at 20) can be rewarded for completing that quest on a severe challenge level. I repeat it HAS to be rewarding and in a very obvious way (players need to FEEL the improved reward).
If they make the reward worth it, you might see LFM's with "hard core mode team work and tactics, going in 10 levels under-level". At least people who hate grinding more would have an option... people who don't mind the grind can keeping doing what they are already doing... blazing through the levels to get to 20 only to turn around and do all the content they skipped massively over-leveled with absolutely no challenge.
Believe me when I say there are lots of players who want to do DDO "D&D style" high risk high reward. with team work and staying together and the rogue doing the traps and wizards in the back. Unfortunately many of them quit the game between 6th and 12th level when it becomes apparent that playing "D&D style" in DDO is laughed at by most of the established player base. Or at the very least, when they realize that Rogues rarely do traps (except for XP AFTER you jumped over them), moving slowly is totally unneeded, tactics are totally unimportant, Staying together isn't necessary. Exploration and Secret doors are "meh who cares" because there's only "vendor trash in their" and Wizards are never in the back. they are far ahead kitting up mobs through their fire walls to make efficient use of their SP.
Bah, I realize you might think I'm off on a wild tangent, but if they did this scaling right, and actually make it WORTH going in highly under-level for extreme "risk vs reward" I think we might see a whole new viable play style emerge from it: the dungeon crawl. Imagine that. I even think it would help DDO retain more players... because high risk/reward (as a new viable play style) for SOME people is far more FUN than doing the same 12th level quest with a 20th level toon 60 times with ZERO challenge and little to no "excitement" to have a decent shot at getting the loot you want on the 3rd "20th completion".