With DKS / D2:DC, an 'Ego Draconis' game starts you at level 1 at the beginning of the game, and you can play straight through to the end of the add-on (there is a seamless transition between the end of the original D2:ED and the start of FoV). The option to start a new level 35 character at the beginning of FoV was primarily for people who had played the original release of D2:ED, and didn't want to start over with a new character in DKS (if you bought D2:ED and the add-on FoV separately you could continue with the same character, but there were too many changes made in DKS to maintain saved game compatibility).
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