I think this game would be more engaging and would retain more players if each player had a special unit (perhaps a unit representing the player and holding the same name and avatar picture as the player) that could be improved as the player levels up. There are already enemy "hero units" like chuck, sir robin, and wild mary. Giving players the ability to control a unique unit would feel pretty neat, and that unit wouldn't have to be very strong or overpowered in order to elicit that feeling. If a hero is "killed" in combat, the hero could have a recovery period similar to generals, but probably much longer (maybe 24 hours). As the player increases in level, he/she could be given the option to add hit points or damage, or maybe even save up a lot of points for different abilities like splash, trample, or caution.
One thing that could make implementation difficult, is that if stat upgrades are not well balanced then there might be one build that is simple better than any others. It wouldn't feel cool to have to either choose the same stats as everyone else or choose stats that suck. One possible solution to this problem would be to have 3 different hero types to choose from, and stat upgrades can be tailored to that hero type. An infantry hero could increase in hp much faster than other heroes and be able to soak up tons of damage, while using stat upgrades to increase damage would be much slower. An archer hero could increase in damage faster than the other heroes. Stat upgrades for a cavalry hero would be very small, but the cavalry hero would of course enjoy the trample ability which targets weakest units first. All 3 hero types would probably need to be given splash damage in order to make increasing damage any fun.
It would be best to have a minimum level required before a player could choose a hero type and begin using that hero in combat (maybe level 26). This would give each player plenty of time to learn combat mechanics before deciding what type of hero to choose. It could also be something that new players look forward to enough that they keep playing when they might have otherwise left the game. Each time a player levels up, they could be given one stat upgrade to spend on their hero. Stat upgrade points could also be spent on reducing the recovery time of the hero (maybe by an hour each upgrade until some minimum limit is reached). Possible base stats and stat upgrades for each hero could be:
Infantry Hero stat upgrades:
Hitpoints: 90 base hitpoints, +50 hitpoints per stat upgrade.
Damage: 40 base damage, +10 damage per stat upgrade.
Archer Hero stat upgrades:
Hitpoints: 10 base hitpoints, +10 hitpoints per stat upgrade.
Damage: 60 base damage, +30 damage per stat upgrade.
Cavalry Hero stat upgrades:
Hitpoints: 5 base hitpoints, +7 hitpoints per stat upgrade.
Damage: 5 base damage, +5 damage per stat upgrade.

If this system was used, and a player got a level 1 hero when they reached level 26, then by level 40 they could have an infantry hero that has 540hp and does 90 splash damage. Or they could have an archer hero that has 60hp and does 330 splash damage. Or a cavalry hero that has 40hp (no longer being targeted before recruits by enemy bosses with trample) and does 50 splash damage to weakest targets. Each of these hero types would be a lot of fun to customize and use, and they wouldn't have to be nearly as strong as the weakest enemy bosses currently in the game. Players could choose a hero type that would compliment the focus of their island's production. (For example: If a player isn't set up to produce higher tier swords efficiently, then an infantry hero could reduce that players reliance on infantry. If they have trouble keeping horses in stock, they could go with a cavalry hero to supplement that crucial part of their army.)
Basically, tailoring the stat upgrades to the hero types could create 3 different hero types that are each very useful but would be almost useless by themselves or without a proper supporting army. Depending on how developers decide to balance the stat upgrades, the hero units could be a fun, addictive and engaging addition to the game, without becoming overpowered or destroying the current game dynamics. They would be extremely fun to use in pvp when that comes around because they would add needed variety to pvp battles!

If you've read this and feel like this (or any variation of this concept) is something that "The Settlers Online" needs, then say so and let the developers know!
Thanks!
-Coriantumr