Well, in the first sentence I meant character building as you meant it: skill increase. Which isn't character building at all, but silly video gamey stats.
In the second sentence, I meant character definition as human storytelling means it: defining how others think of you, essentially. Are you welcome in this town? Are you seen as a philanthropist or a mercenary? Do people really care about you, or do they keep you around because they want to use you?
RPG "character building" is boring to me, especially when you get to "build" your character after killing 15 monsters.
At any rate, I'm thinking about splitting morale into "morale" and "mood;" the former would change at a glacial pace, probably steadily decreasing, but also receive boosts from sleeping in a warm bed regularly, being in good health, achieving meaningful goals. The latter would be more or less what morale is now; affected by things like being wet from the rain, eating gross food, etc. Having either one positive would lead to skill increase. Building able to read or craft would still be dependant on mood; that was my main intention with the getting-wet penalty (no reading til you dry off or whatever).
G-Flex makes some good points; the morale system is still young, really, particularly when I don't have the work of any other video games to learn from. I think moving to a morale/mood system will improve these problems. To be honest, I introduced the thing because I wanted a reason for players to abuse drugs
But it's grown beyond that, and I intend to expand it to fit.