How did the original poster start off with a discussion on scaling up the difficulty only for it to turn into a level scaling debate one post later? Come on guys, read what he took the time to write before responding.
OP, I'm assuming you've already tried out the hard difficulty setting? Keep in mind that the current difficulty settings have more of an impact on Warrior types than Mages (so if you have a mostly caster-oriented party you're not going to be too concerned with the increase hit-chance penalties, for example).
That said, having a few levels over your opponents will (unfortunately) make combat a lot easier. Since the other people responding immediately went to level scaling, I will say that I'm in favor of a level scaling system that bumps opponents up near the party's level, but does not lower opponent levels to match the party (meaning you can still get in over your head while not having to worry about content being wasted on trivial encounters you can faceroll).
You suggested simply bumping up the level of the opponents, but the problem there is that D:OS allows players to move through the game in many different ways, and there's no guaranteeing that every player will be level-X by the time they reach encounter-Y. Where as you may be running into opponents you've outgrown, others may be encountering them at a much lower level. If the current freedom is to remain intact there aren't a lot of solutions beyond level-scaling opponents.
It would be interesting to see it show up in a mod, and to see how players feel about it once they've gotten their hands on it in *this* game (instead of always looking back to Oblivion), but I don't even know if that's possible.
