Hey 'Slayer,
I've made it through the Asylum after having done nothing but the Thieves' Quest (to get enough gold). The biggest problem I had was lack of +3 or greater weapons to kill the Balor, but you get a +3 Cleric's Staff in the Asylum and Jaheira used it to good effect. (That staff, Ironskins and the Ring of Free Action were what made that demon killable.)
Forget needing to be high enough level; there's nothing there that you can't kill with the eqiupment provided. One major advantage to going early: Imoen will be with you for all the other side-quests, so she'll be reasonably high level when you reach the end game.
-- Nifft
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