Shamus has written an article that summarizes others of his wherein he challenges the notion of challenge in a game.
It’s a good read, and prowling back through his archives on the subject is also enlightening. Specifically of note regarding our recent MMO discussion hereabouts is the idea that “challenge” is something that just doesn’t map well to MMO game design. The much broader user base of simultaneous players means that “challenge” is something that is often just left up to the players.
That’s one good argument for building instanced dungeons that scale to the approaching party, or even conform to requested parameters. (Raid leader signs up for “Omega Murder” level Naxx or whatever, instead of “Carebear Cake” level.)
At any rate, I’m very busy, but wanted to keep the discussion going, and Shamus’ article is another piece of the puzzle.