If combats are not challenging + you can freely rest between them yes, it excise all challenge of a dungeon.
Nope, Icelyn is right ... *It* doesnt excise anything ... you do.
Thats the beauty of curent state. If dungeon is set to be too challenging people get frustrated. If dungeon is set to be not challenging enough people get frustrated. But when you hold the tools, its allways exactly as challenging as you make it.