My old sparring partner from Develop magazine and elsewhere, Daniel Boutros, has a piece about game difficulty up on Gamasutra (originally in Game Developer) entitled Difficulty is Difficult. Here's an extract:
When your company budgets for tuning of difficulty levels,
the result is extended longevity for the game, and increased enjoyment for
players at all levels. It goes without saying that games should be appropriate
for their target players on all levels, providing challenges for each skillset.
One important thing to remember, which has been creeping into games recently,
is that players aren't often able to determine their own difficulty levels.
They may think their skill level is far above or far below the actuality.
Dan's thoughts on game design have continued to improve with each passing year, and this piece is his best yet, combining interviews with the designers on various well-known game projects with his own perspective.