Nice examples, and presented calmly
I do have a few things to ask.
You mentioned not abusing game mechanics/AI to win. Does that include using tactics? As using CC spells are tactical option. Granted you are right that if you purposely nerf your party to not have CC options, battles are tougher. If the game is balanced for the worst party set-up then we'd see everyone complaining that the game is too easy (not that we don't get enough of that as is)
The burning soldiers would be an extreme case, not the norm. Some places you aren't meant to go to at level 3 and they don't want you to. That might be why they chose penalties, so you'd have some guidance in where you should be going. But having a hard set penalty rather than just the enemy being stronger/better is a bad choice.
If they wasn't a penalty and you have a difficulty killing creatures 2 levels high than you, how exactly do you see removing the penalty being helpful in that case 5 level higher?
Some game I play are designed to be open sand-box and creatures level with the player. I tend to dislike that choice as I never feel like I'm getting stronger. And also that would be hard to balance well in a party system, it is hard enough to balance in solo character.
Please explain how you see altering/removing the penalty system will actually help you explore more sooner? Because as you currently demonstrated in a poorly designed party it too hard to beat enemies 2 levels higher than you let alone 5 level higher...
I was actually surprised the amount of map open to my low level characters only one corner (where those level 8s were) was blocked from my exploration.
Last but not least... How did your party stay level 3 after all that fighting?
EDIT: Sorry read your paragraph about "It is in the party composition" as your composition the first time, not what the enemy was setup as. removed that comment...
