I started playing the game in normal. But when Zagan, the fly on steroid, hurt my ego by making me quick-load in such a hectic manner which was beyond the threshold of my approval- I went hardline. There I crushed that 'bugger' numerous times to restore my pride and went on to complete the ED part. Then I did almost half of the quests in FoV but stopped and started the game all over, finished ED on more time - still with Hard difficulty setting. No need to try the Nightmare since I control my own level of difficulty by suppressing different skills/abilities/items and implimenting my own handicaps as Joram indicated. Here are few of my self-inflicted penalties:

1. No stat points after Level 11/12 - it was around L17/18 for the first time.
2. No skill over 10 - without jewelry that is.
3. A total ban on any stat boosting beverage - with the exception to BEER of-course smile
4. No special/preset weapons and armor! - This is the most punishing of the lot, still working on it and would be almost impossible if my character was an archer. But my battlemage currently isn't using any special item, only epic and unique.
5. Sometime I refrain myself from using my best attacks, just for fun and experiment.