Not so much on difficulty vs enemies with more and moar HP, but I feel a lot of games now have a lot of hand holding. Direction/hints is good, but when it's all laid out for you with pointers and markers, I find there is little accomplishment when the quest/game is done.
I don't have the reflexes any more for certain genres, but do feel that 'normal mode' is closer to what was originally 'very-easy' on a lot of titles. This is not true for all of course, and sometimes HARD really means it.

Hmm, have you met a dwarf called Branka? She gave me a difficulty spike, right up the arse of my whole party in fact.

Speaking of vita chambers, System Shock 2 is a bloody great example of how to scale difficulty. Being able to change difficulties on the fly is a great idea, as it keeps up the challenge factor of the game, but at the same time can keep things from becoming overly frustrating.
Also, I should note there's a very distinct difference between "difficulty of the game" and "user friendliness". A lot of developers, like 2K/Ex-Irrational, can't distinguish between the former and the latter. As a result, the game holds the player's hands too much, and never raises the challenge in any way. This falls back to my opinion that games should be "easy to pick up, hard to master".
Unfortunately, the concepts too often straddle across the board these days, thanks to idiotic designers.

In Bioshock you can deactivate those in the menu if you want to.

That is in the last patch, which, by the time it was released, I'd already completed the game a month ago. Besides, I played through the game with the Difficulty mod, which I might add made the game slightly more bearable, but still a bit too easy.

At that point now, well, I've just met her. I wasn't fully prepared, a could really do with a resupply topside.
I have to say though, those bits with the crazy couple of dwarves you meet is easily the creepiest part for me so far. Especially the second one, when you learn the truth...

Play it on a harder difficulty and turn on Hardcore mode. That will give you the sense of danger you want, it also makes for way more intense battles. Not a good idea to play hardcore if your not on the ball so to speak, otherwise you can lose hours of playing to a simple mistake.
When I used to play diablo 2 I had hardcore characters for when I was able to concerntrate 100% on the game and some normal characters when I was tired and wanted to kill some things or could devote my full attention to the game.

Personally, a good game is a game where the challenge gets harder and harder from the moment you start. Games that are a total cakewalk to no matter what level you play on (Fuck...you...Bioshock.) are no fun at all. That's just me, but who cares?
On the subject, I've felt that current era games have been getting easier and easier , and only some games retain the challenge seen in old games from SNES and Dreamcast days. Even a few MMOs, such as Shaiya, offer difficulty modes, which I commend them for doing so since it offers the player better skills and equipment for doing so (Perma-death is a bitch.). If we are lucky, Demon's Soul will break this curse...=)

I'm gonna be brutally honest here. I use cheat devices when I play video games, and I have since the Game Genie came out for the NES back in the 80's. Why? Because it makes games more fun for me.
I'll not lie, there's been many a game I've played and I thought "what the -ing hell were they thinking when they designed some of this?" I talk to friends who are in the development side of the games industry, some disagree, some agree with my thoughts. I love that my friend Ian over in England and I can talk about the design of games, concepts, and so forth and where developers went wrong or why they did what they did...
Sorry, getting off topic. The thing is, some of the comments I see in here make me so happy because I know I'm not alone in thinking that games should include easier difficulty settings. But I'm also saddened because so many people say "games are too easy today, I want harder with brutal difficulty and punishing levels". To that I say, grow up in the 80's playing NES games, age yourself by about 20 years, and see how well you do on those games compared to games of today. I can still beat Megaman 1, 2, and 3.. yet I regret ever buying Megaman 9. Super Mario World is a "cakewalk" compared to Mario Galaxy's 100% completion requirements.
I've had thoughts and debates and arguments on video games, development, and where-in difficulty comes into the design for many, many years now. I'm 28, I have Tourette Syndrome, Diabetes Type II, and other health problems... some of which I've had my whole life. I find many, many games made today to be overly frustrating, deliberately difficult by design, and sometimes outright cheap or cheating. Is it any wonder I go through some games using a code device when the AI has accuracy that no Human player will EVER have and is able to snipe you despite being completely obscured by gods-knows-what?
I personally feel that games have NOT gotten easier as the years went by. I feel that I've gotten BETTER at games over the years and that's the sole reason why games feel easier on some accounts. I also feel that games today are no longer unforgiving by limitations, but outright aggrivating on purpose. An example I love to use is Trauma Center, which is an incredibly fun game that I love playing... at least until about 20th or so operation, when the Parasveki Worm showed up. A timed mission WITH A TIMER. What redundancy. Or the Triti Virus, with it's randomly respawning spikes that seem to fight even the quickest attempts to remove them. I have sat there for 2 minutes and it doesn't replicate. I remove all but 5, no replication. I'm down to 1 left... 10 more show up in the blink of an eye! Even with time slowed to a crawl. That goes beyond fair, sails right past challenging, and nose dives somewhere in the "maybe I need to be Asian" terratory.
I realize that remark is stereotypical and I apologize for it. But I see videos of Asian kids playing games in ways that I can't even comprehend with speeds that seem robotic or super-human.
I know I complain, and damn glad that I can, because I want games to get better... not harder. And don't think for a moment that I would use invincibility to just breeze through a game and return in. I never return games or exchange them (unless it literally won't work). I've honed my spidey senses to almost perfection when picking out games that I know I can play either on my own or with a little 'help'. If I use a code for invincibility, or even just an in-game god-mode, I still try my damned hardest to avoid getting hit. I TRY to get better at games. But I just can't keep up with a lotta the stuff that's being thrown my way these days.
I find it sad, but true. And with some of the achievements games expect their players to pull off, I feel even more pressured to do better. Some are outright impossible in my mind and I find it hard to understand how they can include them. Such as beating Megaman 9 without ever getting hit in under an hour.
It feels these days like I am being limited to only certain games, instead of the older days where I was more willing to experiament with various genres. And when I found a game that I loved playing, but just couldn't beat no matter how hard I tried, that was a wonderful time to find my code devices. I still think that Sony, Nintendo, and Microsoft lose sales by preventing people from doing so on their newest consoles.
I don't like admitting that I do rely on codes from time to time. I try hard to play games without them. For a few years I hardly ever used one. Now it feels like I'm having to fall back on them more and more as my skills either don't measure up anymore, or the games just feel impossible. You might be surprised to hear me say this, but I miss the NES, SNES, and PS1 days. Because that was my favourite era of gaming.
EDIT: I went off on a rant, I apologize. What I wanted to comment on was the lies involved in Difficulty Settings. When Easy or Very Easy are genuinely what they claimed to be, and everything else feels like the same setting, Hard. Or the games where every settings, including Easy, feels like Hard Mode with less HP. Or maybe Megaman 9, where you can BUY harder modes, but no Easy modes. That's totally unfair.

Demon souls aint to bad, ive heard about tons of people dying hours on end so far, other then maybe a dozen or so times mainly for doing stupid things like... I wonder if I can fall there and get that item on the ground... or Dragons.... hmm.... maybe thats a boss type stuff.... It hasnt been to much of a problem.
Now if I could get online with it.... then I might change my story but the offline, eh, so far so good,
But yeah.... id rather have a game I can make harder or easier (if needed) then cheat or use a faq or walkthrough. The times I have cheated I generally play for abit longer, then get bored as God mode means oh i can see the ending that I could have looked up online.....
Arx Fatalis I used god mode, Didnt realize I was supposed to throw the dwarf meat at the one part lol and thought I could kill that beast thing..... such is life...

Racing Games are the main change to diff that Ive seen. Midnight Club LA is so hard and frustrating its not playable. its no longer fun when i need perfect driving.
Burnout Paradise is to hard and frustrating simply because you need to be perfection behind the wheel.
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I feel to an end developers are tailoring games to the hardcore audiences. That is to say, the ones that go for 100% trophy/achievements the gamers that need to prove something. I want a game i can play, enjoy and beat on NORMAL. i don't want to have to switch to easy. I don't want to have to do a level over 30 times because a part is to hard. I want to play a game, beat it and then ramp up the difficultly for FUN.
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Best Example of how a game should be done is God of War I, and II, also the new Prince of Persia, Prototype, and inFamous to a point. These game give you the tools to play the game and once figured out there mechanics you can easily beat the game without breaking a sweat. That being said they add elements that challenge you like Collecting said items for bonuses, side missions, survival maps, etc.
Shadows of Colossus is another example, the game does not truly begin until you beat the game, experience the story and unlock the true core game of timed play and custom adventure. It was fun to improve and beat my old times, the game itself was very easy. the story was fantastic and it was just breathtaking.
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Currently I'm playing Mage Knight Apocalypse. the game levels you up on the system of skill use. As you use skills they gain experience which leads to the skill upgrading and unlocking new skills. And the enemy's in all regions scale in a very good not over powering way. Therefore if i so wished to focus on my skills i could dominate and easily beat the entire game. Or I can play around and become any type of player i want and focus on all my skills and STILL the game would be a perfect challenge.
Fallout 3 did this well, along with oblivion. The games were story diven and fun to complete. If i ever wanted it harder i'd ramp up the difficulty slider and THEN have a fun challenging game.
Halo is also a wonderful example. the game is beatable on all the modes if your good enough. it scales well and the game play can be relaxing or furious depending on your settings.
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In the end games need to be beatable from the default settings with NO PENALTY for using it, or an easier mode. Once beaten allow an unlockable harder mode. Sort of like Ninja Gaiden, with there hurricane packs and God of War(s) GOD mode.
Games should be fun, beatable and rewarding. Give new costumes/weapons abilitys and let us boost difficulty when WE want.

Saw a couple things in this I wanna quote/talk about briefly because I really happened to like your post. :p
Oh gods, I forgot about racing games, how could I have possibly forgotten one of the cheapest, most unforgiving genres of all time. Where you can be 3 laps again, and STILL lose for blinking at the wrong moment. Where even on the easiest setting, you feel like you're gonna puke by the time the race is won from all the near misses and retries and screw-ups... on the first race. *cough*NeedForSpeed*cough*
And it isn't just modern games. I think it goes as far back as Super Mario Kart on the SNES, where the CPU players would suddenly speed up, and you could visibly see it on the map at the bottom of the screen, until they'd passed you or pulled up along side you. Regardless of what their restrictions were on speed and such. Perfect turns, no collisions. I believe the logic was "if you can't see me on the screen, you can't see me cheating", and even then it rarely stopped there.
This is something that eats away at me, because I am one of those gamers who likes being able to complete games with 100%. But things like Trophies and Achievements for assinine crap and nigh-impossible feats just drive me inside. Megaman 9 was probably one of the most ridiculous ones I have come upon so far, when the game itself already feels unbeatable, and I see challenges like never being hit, fighting the same boss for XX minutes, etc. Or Smash Brothers: Brawl, which required you to beat the hardest settings with all characters, or simply beat an extremely hard challenge with every character (100 man melee with all characters, etc), when those were so bad you could barely beat it with one.
I am reminded of a game.. I keep thinking it was Devil May Cry 3, where in you unlocked Easy Mode by doing so pooly you died like several times in a row or something. I recall it being fun, and definitely Easy, but they penalized you for playing it, I think. I've seen a lot of games punish players for using Easy Modes in games and only giving them the good rewards for the Harder Modes. That, I think, is wholly unfair. It rewards the more skilled (or more insane/dedicated/etc) players while punishing the players who just wanted to have fun or didn't enjoy the 'hardcore' challenge of the more difficult modes.
And likewise, when a game contains a built-in cheat, like God Mode in the old Goldeneye and Perfect Dark games, that it refused to let you progress further while using the code. Again, it gives you a good reward for doing a really hard task (in Goldeneye, it was beating a fairly easy level in a really hard way), but then it penalizes you for using the very feature you unlocked.
I whole-heartedly agree that games are supposed to be fun, enjoyable, and what they were meant to be: Entertaining. That's why it was called the Nintendo Entertainment System, because games were supposed to be fun to play. But it feels more and more like games are becoming a new sport, or something, where they encourage you to do more than your 100% and becomes outraged when you can't measure up to the skills they want. Look at your average random gamer board, such as GameFAQs, and you'll see so many people exaggerating their skills and claiming feats they probably haven't done, and then condemning anyone who says a game is hard, or they're having a difficult time/wanting help. It's sad... and I hate that this is what a lot of gaming communities have become.
EDIT: Sorry for the huge posts in here, everyone. It's just one of those things in games that I get passionate about. <_>;

NES era was just stupid. Trial & error. Having to replay the whole level if you die?
Just plain stupid.
As someone said, todays difficulty is artificial.
Making them two things. Tedious and/or boring.
Skill-based games that offer no difficulty is simply no fun to play through.

The perfect balance in game difficulty was, for me, found in Clover Studios' games. Okami, GodHand, Viewtiful Joe...
Okami was so good in fact, that each challenge (and there was a fair amount of them) was FUN and repeating them quite a few times was in no way irritating.
God Hand has a great Level system - as you play better, the enemies are harder to beat. Play worse, and the enemies are easier to beat. Pure genius.
(Bayonetta seems to have this same playstyle.)
Does anyone remember an old side-scrolling platformer named Claw for the PC? You're a pirate cat captain fighting other pirate animals, finding treasure, etc.? Now THAT was seriously unfair in some parts.