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This thread has gotten me thinking about my favorite game from the 16-bit era, Gunstar Heroes. It has the perfect difficulty-to-reward/punishment ratio.

Several difficulty settings, that range from giving you a moderate challenge, to allowing you to breeze through, to giving you a proper asskicking and making you feel like the man once you finally beat it. Long levels that send you all the way back to the beginning of the level when you die, but the first half of the game lets you pick the order to tackle them and gives you higher max HP after completing each one. And perhaps biggest of all, unlimited continues. No "HA! YOU JUST WASTED THE LAST THREE HOURS OF YOUR LIFE! SUCKS TO BE YOU!!!" game over screens that send you all the way back to the start screen when you run out of lives. You get your ass handed to you a couple of times, take a breather, jump right back in, do better next time and earn your hard fought victory.

Games like this are my idea of a likable hard game. This is why I remember the 16 and 432/64-bit eras more fondly than the NES era.