I think that's the BECMI ScottS mentioned.
Ice9->
Honestly? Aside from the timescale (and general power level) I haven't really thought about the nitty-gritty details on how Mythic plays differently from the first two tiers (it hadn't gone beyond Mythic = MtG). Thought experiment hadn't gone that far

That being said, there's a lot of ways to do this, such as...
a) The demi-God acts as a puppet master over his followers.
b) The demi-God actually walks the Earth and personally kicks ass.
c) The demi-God lends his divine essence to mortal beings, who then acts as his proxy on Earth.
Or a combination of all 3.
Now as to why they don't simply "take a few hours off and go on a teleport-spree through your rival's towers, blasting the crap out their minions and libraries" - I would say that the presence of existing Gods would be a deterrent to such behavior.
Think of it like the Cold War. The Gods are armed with nuclear weapons. And they can totally destroy the world if they want to. But they *don't* want to do that. Because if they kill everyone nobody would worship them, and they'd lose their divinity and powers.
So when a demi-God decides to walk the Earth and blast fireballs at a rival God's temple, all the Gods notice. And they get pissed off. Because they don't want one of the Gods being pushed too far and deciding "Screw the world! Fire the nukes!".
CCarter->
Well, a central idea behind this thought experiment is that the nature of the game totally changes in different tiers. Hitting things hard eventually becomes a less viable solution, especially when the game starts focusing on negotiations and stuff.
So a fighter really has to get Lord skills, or retire. In the former case, he can still hit stuff really hard if he needs to (and he's got better gear to hit with), but it's become a secondary ability. Likewise, all of the "Burn enemy alive spells" the Mage had been learning? They become less important in Tier 2.
But you're right about the "Fits in Tier 1 and 3, but not in 2 thing". I've been mulling about it since Orca's post. So here's another proposal:
Branching Tiers.
When you hit level 8, the party has two options:
a) They can go into the Royals Tier, which lets them play the Game of Thrones.
b) They can go into the Super Heroic Tier, wherein the party becomes akin to a team of Super Heroes.
And parties who take either route can both progress to the Mythic Tier, which is in any case a blend of the two styles. So somebody like Gilgamesh is probably a Royal Tier dude who goes into Mythic Tier, while Hercules was part of the Super Heroic Tier along with the Argonauts before hitting Mythic.
In fact, maybe it's best to rename the tiers to the following:
* Tier 1: Adventurer's Tier. Focused on tactical combat.
* Tier 2 (a) : Heroic Tier. Similar to Adventurer's Tier, but with Super Heroes.
* Tier 2 (b) : Royal Tier. When Adventurers move up the food chain and lead kingdoms and armies.
* Tier 3: Mythic Tier. When you become awesome enough to be immortal and start challenging the Gods themselves.
Now, branching tiers make the game even more complicated. But I think this may be a neat concept that hasn't been fully explored before.