XP-based progression isn't always padding. It definitely isn't hard to find examples where it is, but it's also a pretty good solution to a common problem: you want the game to present a hero's journey, where you start out weak and eventually become powerful, but you want a generic way to handle the players' progress.

It's really the same as the debate in TTRPGs like D&D, where the DM could either reward levels based on XP earned from killing monsters, or could forego that altogether and award levels at set points in the story. In a video game setting where you intend things to be really open ended / the player should have a lot of freedom about what tasks they do and in what order, it's hard to handcraft exactly what each player's adventure and progression should look like, so an XP system is a really simple way to generalize it for everyone.

It's only padding if it requires you to engage with a lot of content that you otherwise wouldn't want to do, before you can progress the story you're actually interested in. But that's not the fault of the system itself, it's in how the designers chose to use it.