My next RTD is 75% (80%? 90%? hard to tell exactly) done with the rules writing and all the preliminary work figuring out exactly how the mechanics will work. Yay! Soon it shall overtake the RTD sub-forum, and obtain trillions of posts within days, breaking the interwebs.
My RTD, I just kind of jumped out of the gate with it. I did the mechanics as the need came up. >.> "Oh shit, I need health. Well, jacking DnD style health. Er, shit, I need levels or this will be the same thing forever. Ah, okay, I'll invent classes AND levels..." Needless to say, it got horrifyingly complex REALLY FAST.
Yeah, I did that with my first RTD.
I ended up adding/changing rules nearly every single turn, and although it wasn't a disaster, it was a huge pain in the butt not having worked out rules that would last through the whole game beforehand. It was my first RTD though, so I don't know if I could have (and it helped me work out what didn't quite work as well), but I really want the rules to be established beforehand and not to change during the game at all.
If you want to see the two ways I've done RTD, check out both of mine. I feel like I strongly benefited from having established rules at the beginning of both of them, although the Madoka one is still in its infancy so I guess it could still turn out badly. I think it's going to go well, though.
Mayfly is a much more casual one. I set up basic rules at the beginning and pretty much everything else is done on the fly. There's not too much character progression, but whatever there is gets assigned to players after they've done enough stuff to warrant being more experienced. The Madoka one has a rigorous set of attributes and a level system. I'm still making up abilities and attacks on the fly, but I've got a system to base it off of that's pretty much set in stone.
I tried a couple with no rules back when RTD stuff had just started, but it got really chaotic, which is fine if you're into universe destroying ghosts and shit, but I always find that roleplaying is at its best with some restrictions to work within. You can always make up rules as you go along to deal with crazy shit, but I think that just makes it more difficult for your players to follow and makes them feel like they're being punished when you make rules to react to what they're doing.