There IS a way to objectively categorize difficulty in gaming, and measuring it per MMO is rather easy, if you feel like putting in a lot of time to do so.
There are 3 categories of Difficulty:
Patience / Persistence - Out of the 3, this leans towards more of a trait, really, because a person in any situation can weigh the rewards and subjectively decide whether they feel like putting in the time for what they are receiving.
Strategy - This is how effectively a player can plan any given action to achieve a result in the game. Ex. A player knows that taking Orcs A and B out first are necessary to take out Orc C. Alternatively, using skills X, Y, and then Z in a row are needed to kill the enemy within XX minutes.
Reflexes / Reaction Time - Commonly referred to as "twitch" skills, this is a player's ability to react in a timely manner within a situation that requires any timeset, or can also mean being able to aim and press the correct keys/buttons at the precise time.
As of this current time, I believe that the first difficulty is the one most widely used in any given MMO, followed by the second, and then the third. Of course, this changes if we are talking about MMOFPS or MMORPS, among others.
Much of what is being mentioned now is the death penalty, which largely ties into the 1st difficulty. Obviously, many of you are expressing many different viewpoints on what kind of death penalty should be in a game. Personally, I remember only ever being scared of dying in Lineage 2, which gives a chance of you dropping a weapon when you died, so that if you did, you ran like hell back to your grave to recover the item before someone else picked it up. Given how expensive said weapon was, it could be a terrible loss.
Of course, that is still merely a loss of time. But as of now, until games create timesinks that are meaningful, like the ability to really change the world with persistent and laborious actions, timesinks like death penalties shall continue to exist. I will say, one effective and meaningful death penalty would be permadeath, because in no way would you ever be guaranteed to make it to the last level. But I will agree with gestalt11 that it mainly changes tactics in games that delete your character.
I want games that test more of our twitch skills and strategy. I want to be able to get into encounters with NPC's where I need to attack from a certan spot, use the environment to my advantage, use certain abilities to ensure success at certain times, and then, when I am ready to execute the plan, I want the siutation demand I be quick on my virtual feet and solve each part of the problem fast enough to ensure my success.
I think mainly a good point of why time and patience is used most is that it ensures even the most unskilled players can get the best gear and rewards at the end of the game, whereas if quick thinking and strategy were more important, not everyone would ever end up with the same rewards or even the best rewards. I realize there are many of you out there who don't have the means to always have twitch skills, but honestly, there could be some middle ground. Or perhaps, games just need to experience more of a shift.
Also, I feel leveling is a culprit here, because in most games, you can simply outlevel or outgear a challenge. But I should note, these are all my opinions, and I only speak for some portion of the population that feels the same about games.