I was just reading an article at IGN today about game difficulty and in another thread here we were discussing bad gameplay designs that seem to infuriate players more than entertain.
In general I think videogames these days seem too forgiving. That is to say, my perception is that videogames lack that sense of punishment for failure that the NES era of games had. It's probably due to being able to save games to media files along with clearer tutorials that eliminate trial and error learning of game mechanics.
On the other hand, some games try to create difficulty artificially by imposing ridiculously impossible parameters to the core gameplay. Like throwing an unfair number of enemies towards the player, increasing game speed to the point where players need god like reflexes just to even react properly, and having enemy behave in a way that tests players endurance more than allowing players to actively engage the game using interesting strategy.
I'm sure you all have specifics in mind to share here.

I like difficulty options. Hell, just giving me options between 'Normal' and 'Hard' is more than enough for me. Wonder why this is not a standard in all games...

Games back in the NES/Megadrive days were just brutally hard because there was so little of them. I remember finishing Strider on the Megadrive only to be told this was a test and now the real mission begins. I finished it again and I was told this was just a test and the ... you get the picture.
There is no question games are easier these days but the games are also a LOT bigger than they used to be. Even Yahtzee who hates RPG's has clocked up 30 hours on Dragon Age: Origins. 30 Hours even by his own admission is amazing value for money.

That is to say, my perception is that videogames lack that sense of punishment for failure that the NES era of games had.
You should be thankful for that. As the majority of gamers are now adults who tend not to have much free time anymore, it's far better to offer up difficulty options that don't force the player to become overly frustrated with your product. As that ultimately encourages further support for future products. Allow a potential customer to play the game how they want -- with as much or as little challenge as they want -- and you'll sell more =).

I agree, I'm 26 and I don't have the time, attention span, and reflexes I used to have. But when I play newer games a lot of them just don't give you that sense of satisfaction or accomplishment anymore. It just feels like you're along for the ride and you'll get to see it all even if you don't try that hard.
An example of two games on opposite ends of the spectrum are God of War and Ninja Gaiden. God of War is a slick cinematic button masher that you can breeze through pretty easily. Now imagine if it was an NES game where the enemies were more aggressive and their attacks stronger and there were no checkpoints through out the levels. As you progressed to the next area just barely scraping by you'd be relieved and excited to see the new area with its change of scenery and enemies. That's the feeling I had with old school games.
But then with Ninja Gaiden however I hated how cheap the enemies were with their constant and impenatrable blocks. And the practically one hit kills that bosses had. Even with the checkpoints and a save system, I just had no desire to progress to see where the game went.
In the end it's about the actual experience the player has from moment to moment. It's about balancing the actual difficulty in the moment. Tone it down from Ninja Gaiden's impossible to get out of situations and turn up the aggressiveness of the pushover mooks in God of War.

Sometimes I want games to be hard. Sometimes I want them to be easy.
I always want to be able to choose.

I usually just play at the default level of difficulty, when I'm done I'll generally go for the hardest and play it again (doing that in MW2 right now). I think that more games should go more "roguelike" and if you die in say, the hardest mode in Duke Nukem Forever or whatever your save will be wiped and a video of your utter failure will be uploaded and sent to everyone you know.

Two words: vita chambers

Haha, that Duke Nukem Forever comment really made me laugh.
But I'm the same in that I pretty much always play default difficulty first. I see it as how the developers intend the experience to be. These days though I just never really have the motivation to play through games more than once unless they're extraordinary games.
As for Call of Duty, I find the default difficulty to be pretty cheap already. The regenerating health is pretty indicative of the imbalance IMHO. On Veteran, the game is just cheap and pretty much unplayable unless you hide around every single hill and corner. Find me someone who can play through on that first try without reloading a single checkpoint and I will present to you Jesus.
A game that I find too easy as I'm playing through is Torchlight. On Normal, that game is a cakewalk so far. As long as I'm leveling up and upgrading or buying new weapons, I never really feel as I'm ever in danger. And even if I die I just respawn back in town with no penalty, at the dungeon entrance with loss of gold, or on the spot with minimal loss of experience.

Amen to that. I just looooveeeee the hardest mode in far cry (1) for that. You have to be stealthy or you'll get your ass handed to you. I hate it when the AI cheats tho, like some vietnam game i played a couple of years ago. Goddammit, we're in the jungle. No way you can snipe me from across the map with all the foliage hangin' around.

As long as there is godmode and other useful cheats, I don't really care about the difficulty settings :-P

I like having options, and I usually pick either normal or easy, depending on how hard the game is (for example, I'm playing DAO on easy).
If there's one thing I hate, it's being frustrated about the difficulty. Spikes in difficulty do this, as does the game deciding that it's going to change the rules for one level.

I don't think that the 8bit era was in any way a good benchmark for properly challenging gameplay. Most of it varied between trial and error tedium and crap that clearly had never been play tested by anyone even once - even by the developers. There were a few gems here and there, but on the whole it was mostly crap. By modern standards at least. There are very few 8bit games I'd happily return to now without getting the rose tinted specs getting knocked off.
A properly difficult game should test your reflexes, accuracy and cognitive abilities. Trial and error and requiring pixel perfect jumping was always crappy. Games should be challenging. But if that challenge is poorly implemented then people will just lose interest.

Sometimes i like one given difficulty setting, like it was for example in Mafia. Do you remember? With first playthrough some missions was very hard and you had to try really hard to beat them. It wasn't easy and nobody could choose easier difficulty, but I think it was fair and very well balanced. Even that infamous race which was really challenging (but they later dumbed it down with difficulty options).