read down from..
http://wiki.project1999.com/Experien...for_Experience
through to...
http://wiki.project1999.com/Experien...perience_Works
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If only duoing 100% of the time there is no way a -20% xp player is pulling ahead of a -5% xp player. So if your friend is really higher level he's been killing on the side, grouping on the side or turning in quests on the side and not telling you or realizing what he's doing.
Furthermore I have personally seen a player with no exp penalty catch up to a player who has a exp penalty and pass them in level. This happened at higher level ~50 so perhaps keep going and tracking that exp. As well as talking to your friend about what they do when you're not around.