Yeah, I don't like the concept of difficulty settings in games. It almost always ends up being implemented in some half-assed unnatural way. Whenever you design any kind of a game world (or levels, or whatever), a lot of decisions and balancing go into that, and that's very difficult to do even once, but once you start coming up with multiple such states, one for each difficulty setting, it just becomes a total clusterfuck.
I think game designers should just figure out what kind of game they want to make and focus on making it true to that vision, instead of having to dilute their efforts on a bunch of "flavors" of it.
If you do decide to implement a difficulty level system, then make them affect something important in an intelligent way. I really hate the way RPGs just change hitpoints and damage, or sports games change it so that defenders on higher difficulty settings stick to your player like glue. These approaches are just stupid and annoying.