I've never touched the difficulty slider in Oblivion nor Skyrim. They just don't do what I want when it comes to adjusting the games' challenge. I want weapons to be deadly - both Buffy's and her victims. Fights should be about not getting hit while managing to hit your foe. It should take but a very small number of successful hits (arrow or melee) to kill the player or their foe. The difficulty slider makes foe's more dangerous, but nerfs the player so it is not useful to me.
My solution has always been to limit Buffy's melee/arrow defense via a small health bar and crappy armor rating. I limit her foe's defense by 'capping' Buffy's character level at a point where foes have manageable health bars. Then I fine tune things by tweaking the damage Buffy's bow + arrows do until the challenge is exactly what I seek: A glass cannon that can strike like a dragon or crumple like a butterfly.
Regarding dead is dead. While I'm pleased that many enjoy this style of play for the intensity it can offer to some players, it is that very intensity that precludes it from my game. If I thought I could lose Buffy, two things would happen: First, I would never ever let her out of a walled city. Secondly, the very fact that I could lose her would cause me to build an emotional wall between she and I as 'protection' for the possibility of losing her. Key to my relationship with Buffy is that it transcends death. My profession exposed me to enough death, not to mention losing my first wife to death. As it is, when playing and Buffy takes some significant damage I do actually experience an unpleasant physical reaction. She may drop to the floor and cry after surviving a close call but, frankly, I need the pause as well. On a happier note however, we play cautiously enough that she only dies about once every 800 hours or so of play time. Call me odd, but I'm too old to care.
