I can tell you that I'm sure there were damage caps all the way up.
At level 19 I got a one per server weapon during a huge GM event that took place as best as I can recall in about September or October of 1999.
The item was
https://wiki.project1999.com/The_Butcherblock_Hammer
At the time this was about the strongest weapon in the game.
Anyway I was obviously hitting for max damage with it all the way up. I distinctly remember the max hit going up substantially about every 10 levels. It went up at 20 from 19, then again when I dinged 30 40 and so on.
If there were no damage caps i would have been absolutely wrecking mobs my level. That was not the case. I hit hard, as hard as anyone could at my level but it was not what it would have been if there were no cap.
If the cap was removed, I don't remember it and in any event it wouldn't have been until the 40s. At that point I couldn't really melee effectively anymore because of the skill caps on 2h hammer, no double attack, and lack of defensive skills. I did however get to melee a ton and did so pretty well all the way up to about 40.
I was always waiting for the weapon to proc every time I leveled but it didn't go off until level 50. By that point it didn't do me all that much good because my melee skills were so bad by then.
It became no drop but it could actually be traded for a few days before they patched that in. I remember my friend telling me I should consider rolling a paladin and giving it to him, but I didn't and used it on my cleric.