For some reason the settings for player damage and AI are not saving. It looks like they reset every time I quit the game. I've heard of other people experiencing the same issue. I have to adjust them almost every time I start the game. Sometimes they stay remembered only to revert back after re-starting the game. I had similar issues with Warband.

You could try writing the settings directly into the game's settings file.
Got to the game's folder in \Users\<User who runs the game>\Documents\
and edit rgl_config.txt with any text editor.

I have set the values manually but still they revert when I quit the game... Only settings for difficulty and AI are affected.

Someone with a similar problem posted a workaround here - http://www.gog.com/forum/mount_blade_series/my_settings_dont_save_and_a_weird_thing_on_my_volume_section/post3

Have you checked if there's another rgl_config.txt on your system, saved under a different user account (e.g. Administrator)?

Nope, only my user account has the file. I've narrowed down the problem to the quit button in the game. The file resets when you click quit. I'm using a small .bat file as a workaround to copy my rgl_config over before I start the game until I find another solution...

Hehe, oldschool. I like it :-)

Anyway, thanks to everyone who responded. The game is simply buggy and that's it obviously it. I like it anyway, since it clearly shows that games with a modest budget can be way better than any screaming high budget franchise.
A rough diamond, in my opinion.

Another idea, the game also saves some data in
C:\Users\<User Name>\AppData\Roaming\
Maybe that's where the old settings are coming from.

Also check
C:\Users\<User Name>\AppData\Local\
and
C:\Users\<User Name>\AppData\Local\VirtualStore
for any data belonging to the game.

Make sure the game is allowed to write to that file (start it as administrator). Also, make check if the settings file isn't read only (although I don't know why it could be, unless set manually).

I appreciate the replies. I've looked in the appdata but it seems only the controls are saved there. My account is an administrator, and it's strange this problem happens only with 3 settings (3 of the difficulty settings). Besides, it doesn't explain why some settings are saving but the others aren't. Anyway, I am sticking to the .bat method for now.

After further investigation the game seems to be defaulting to the difficulty settings selected when starting the game...

Selecting the difficulty DURING a battle seems to have finally solved the problem :)

Tsk-tsk, that's one odd saving system by TaleWorlds.
Thanks for the feedback, pisces72!