Is neverwinter nights and its expansions capped by the number of character levels or by experience points?

Character levels. You can get up to Level 40 with all the expansions.

Aha! So even though you play as a character with XP penalties you can still get up to level 40. Exxxxxxcelllent!!

THanks

Yeah it just takes you longer because you get less XP per kill/quest.

And also you can keep gaining experience after level 40, which won't make your character more powerful, but does mean you're less likely to lose a level when you respawn (if that's the module setting), or when you buy things for xp (again, depends on the module. Some let you buy items/enchantments/all sorts of whack things in exchange for experience points).

This begs the question: Are there any XP Cap removers for NWN/SOU/HOTU, such as there were for Baldurs Gate II SOA & TOB? A related question would be: Are there any modules which would challenge such a potentially uber character?

There are XP cap removers for NWN. They don't work with HotU and possibly not with SoU either.
What they do is basically extrapolate the xp needed to advance, give skillpoints as always, and give feats every third level (more if you're a fighter). They also increase saving throws and your base attack, and spells advancec as normal too I do believe.
These are typically hak packs, meaning you can't use your level 81 character as a valid character in most places. Using it as an invalid character, you won't get any of the bonusses of your last 61 levels except perhaps feats and skillpoints. I've no idea. While I respect the effort people put into it, the end result isn't so thrilling I'd consider using it for myself.
Are there modules which'd challenge such a character? There probably are a few. There'd be more had the cap removers ever become popular.

There aren't any for HotU yet either, and I doubt there will be soon. It's just not pretty like it is in the BG series, because of the way levels are set up.
So the best thing to do would be feeling glad that HotU lets you advance an extra 20 levels. Myself, I think a cap at 20 is and always has been plenty.

Yeah also there is nothing in place for the higher abilities that come after level 40 they just don't exist. If your looking for any such XP cap removers then check out nwvault.com

If you play up to level forty your character must be a multiplayer character! I think if one plays the single campaign up to level forty you must get quite bored and may feel like you want to start a new character!

he could be playing mods....