This is the basic invisibility spell:
Invisibility
Illusion (Glamer)
Level: Brd 2, Sor/Wiz 2, Trickery 2
Components: V, S, M/DF
Casting Time: 1 standard action
Range: Personal or touch
Target: You or a creature or object weighing no more than 100 lb./level
Duration: 1 min./level (D)
Saving Throw: Will negates (harmless) or Will negates (harmless, object)
Spell Resistance: Yes (harmless) or Yes (harmless, object)

The creature or object touched becomes invisible, vanishing from sight, even from darkvision. If the recipient is a creature carrying gear, that vanishes, too. If you cast the spell on someone else, neither you nor your allies can see the subject, unless you can normally see invisible things or you employ magic to do so.

Items dropped or put down by an invisible creature become visible; items picked up disappear if tucked into the clothing or pouches worn by the creature. Light, however, never becomes invisible, although a source of light can become so (thus, the effect is that of a light with no visible source). Any part of an item that the subject carries but that extends more than 10 feet from it becomes visible.

Of course, the subject is not magically silenced, and certain other conditions can render the recipient detectable (such as stepping in a puddle). The spell ends if the subject attacks any creature. For purposes of this spell, an attack includes any spell targeting a foe or whose area or effect includes a foe. (Exactly who is a foe depends on the invisible character’s perceptions.) Actions directed at unattended objects do not break the spell. Causing harm indirectly is not an attack. Thus, an invisible being can open doors, talk, eat, climb stairs, summon monsters and have them attack, cut the ropes holding a rope bridge while enemies are on the bridge, remotely trigger traps, open a portcullis to release attack dogs, and so forth. If the subject attacks directly, however, it immediately becomes visible along with all its gear. Spells such as bless that specifically affect allies but not foes are not attacks for this purpose, even when they include foes in their area.

Invisibility can be made permanent (on objects only) with a permanency spell.
This is invisibility as it works in DDO:
Description:

An ally becomes invisible, vanishing from sight, even from darkvision. If he or she attacks a target or interacts with certain objects, the effect is removed.

Invisibility essentially works as +20 buff to target's Hide skill. Target is considered to sneaking even when running at full speed. Enemies may still hear an invisible target if their Move Silently skill is lower then the enemies Listen skill. If enemies hear you while you're invisible, they will still pursue you, and attempt to attack where they believe you may be, based on their Listen skill.

What removes invisibility:

Attacking and hitting a target - If you hit thin air or miss, it won't break.
Casting any offensive spell - Anything that deals damage or would cause any aggro.
Interacting with most objects - opening a door, pulling a lever, activating a rune - anything that brings up a progress bar generally.

What does not remove invisibility:

Casting buffs or healing spells (except as an attack upon undead).
Playing bardic music.
Picking up objects such as crest.
Talking to NPCs.
This is the Listen skill:
Check

Your Listen check is either made against a DC that reflects how quiet the noise is that you might hear, or it is opposed by your target’s Move Silently check.

In the case of people trying to be quiet, the DCs given on the table could be replaced by Move Silently checks, in which case the indicated DC would be their average check result.

See also: epic usages of Listen.
Action

Varies. Every time you have a chance to hear something in a reactive manner (such as when someone makes a noise or you move into a new area), you can make a Listen check without using an action. Trying to hear something you failed to hear previously is a move action.
Try Again

Yes. You can try to hear something that you failed to hear previously with no penalty.

Listen DC
Modifier Condition
+5 Through a door
+15 Through a stone wall
+1 Per 10 feet of distance
+5 Listener distracted
This is the invisible condition:
Visually undetectable. An invisible creature gains a +2 bonus on attack rolls against sighted opponents, and ignores its opponents' Dexterity bonuses to AC (if any). (Invisibility has no effect against blinded or otherwise nonsighted creatures.) An invisible creature's location cannot be pinpointed by visual means, including darkvision. It has total concealment; even if an attacker correctly guesses the invisible creature's location, the attacker has a 50% miss chance in combat.

Invisibility does not, by itself, make a creature immune to critical hits, but it does make the creature immune to extra damage from being a ranger’s favored enemy and from sneak attacks.

A creature can generally notice the presence of an active invisible creature within 30 feet with a DC 20 Spot check. The observer gains a hunch that “something’s there” but can’t see it or target it accurately with an attack. A creature who is holding still is very hard to notice (DC 30). An inanimate object, an unliving creature holding still, or a completely immobile creature is even harder to spot (DC 40). It’s practically impossible (+20 DC) to pinpoint an invisible creature’s location with a Spot check, and even if a character succeeds on such a check, the invisible creature still benefits from total concealment (50% miss chance).

A creature can use hearing to find an invisible creature. A character can make a Listen check for this purpose as a free action each round. A Listen check result at least equal to the invisible creature’s Move Silently check result reveals its presence. (A creature with no ranks in Move Silently makes a Move Silently check as a Dexterity check to which an armor check penalty applies.) A successful check lets a character hear an invisible creature “over there somewhere.” It’s practically impossible to pinpoint the location of an invisible creature. A Listen check that beats the DC by 20 pinpoints the invisible creature’s location.

A creature can grope about to find an invisible creature. A character can make a touch attack with his hands or a weapon into two adjacent 5-foot squares using a standard action. If an invisible target is in the designated area, there is a 50% miss chance on the touch attack. If successful, the groping character deals no damage but has successfully pinpointed the invisible creature’s current location. (If the invisible creature moves, its location, obviously, is once again unknown.)

If an invisible creature strikes a character, the character struck still knows the location of the creature that struck him (until, of course, the invisible creature moves). The only exception is if the invisible creature has a reach greater than 5 feet. In this case, the struck character knows the general location of the creature but has not pinpointed the exact location.

If a character tries to attack an invisible creature whose location he has pinpointed, he attacks normally, but the invisible creature still benefits from full concealment (and thus a 50% miss chance). A particularly large and slow creature might get a smaller miss chance.

If a character tries to attack an invisible creature whose location he has not pinpointed, have the player choose the space where the character will direct the attack. If the invisible creature is there, conduct the attack normally. If the enemy’s not there, roll the miss chance as if it were there, don’t let the player see the result, and tell him that the character has missed. That way the player doesn’t know whether the attack missed because the enemy’s not there or because you successfully rolled the miss chance.

If an invisible character picks up a visible object, the object remains visible. One could coat an invisible object with flour to at least keep track of its position (until the flour fell off or blew away). An invisible creature can pick up a small visible item and hide it on his person (tucked in a pocket or behind a cloak) and render it effectively invisible.

Invisible creatures leave tracks. They can be tracked normally. Footprints in sand, mud, or other soft surfaces can give enemies clues to an invisible creature’s location.

An invisible creature in the water displaces water, revealing its location. The invisible creature, however, is still hard to see and benefits from concealment.

A creature with the scent ability can detect an invisible creature as it would a visible one.

A creature with the Blind-Fight feat has a better chance to hit an invisible creature. Roll the miss chance twice, and he misses only if both rolls indicate a miss. (Alternatively, make one 25% miss chance roll rather than two 50% miss chance rolls.)

A creature with blindsight can attack (and otherwise interact with) creatures regardless of invisibility.

An invisible burning torch still gives off light, as does an invisible object with a light spell (or similar spell) cast upon it.

Ethereal creatures are invisible. Since ethereal creatures are not materially present, Spot checks, Listen checks, Scent, Blind-Fight, and blindsight don’t help locate them. Incorporeal creatures are often invisible. Scent, Blind-Fight, and blindsight don’t help creatures find or attack invisible, incorporeal creatures, but Spot checks and possibly Listen checks can help.

Invisible creatures cannot use gaze attacks.

Invisibility does not thwart detect spells.

Since some creatures can detect or even see invisible creatures, it is helpful to be able to hide even when invisible.
As it stands, most of the benefits that are supposed to be provided by invisibility are not provided. Creatures are able to detect and locate with pinpoint accuracy. They are able to detect and pinpoint the presence of an invisible creature from distances far beyond what their skill should allow.

Please either fix Invisibility so that it works correctly. If you aren't going to do that, but instead continue to treat it essentially as a boost to Hide, then reduce the spell level to a 1st level spell as befitting its effects.