Quest Mode certainly needs to be looked at. I'm level 13 with my characters and pretty much only find B and C level junk. Every so often I have stumbled upon a level 1 weapon, which is nice, but I haven't seen a single level 1 attack spell pop up other than Divine Light.
Also, I understand penalties for failing, but why do we lose the exp we earned in the quests? We overcame the banes, we should get something for it. I can understand not awarding players gold but it is really tedious to lose all the exp gained form defeating the banes.
Also, why would anyone want to bother with the difficulty tiers? The gold rewards are so minimal, I find it difficult to want to slog through a quest with two awful effects hindering me.