The game is just a one-shot deal though. Each dungeon is generated on the fly based on the character.
I don't think a player character's equipment should be a factor in the level generation. Otherwise every dungeon is the same difficulty, independent of the level, or how well armed we go in.
The game should provide a dungeon for a character of level = maximum level of entering adventurer.
So a two person team with lvl 12 and a lvl 6 character, will be entered into a two player lvl 12 dungeon.
That won't work if you use the example Struan gave. The lower level character would be wiped out in the first battle. Having played MMOs were I was the lower level character, there's no fair, easy way to generate a dungeon appropriate for a wide level difference.
The dungeon difficulty should be for a player with a degree of armor, proportional to the dungeon level.
So if the game expects us to have 200 armor points provided by armor gear, by level 20, and we enter a level 20 character, it is a dungeon built for a character with 200 armor points provided by armor gear, independent of what we actually have.
If we have good gear, with 300 armor points, we will find it easier than if we enter under-protected with 100 armor points.
This should cover expectations of armor, magics, and weapons.
The gear the character has should have nothing to do with the level generation. If a play chooses to keep crappy gear on his high level character that's his problem. It should be strictly level based.
The first few levels should feel progressively harder, until we find newer better gear which offsets that, and so on.
Making it level based should do that.
It should couple well with my previous suggestion of discrete spell strengths across the golem family, for example. There you get the same creep class feel progressively easier because it's spells are relatively less potent until we step up to the next class in the family.
That we'll work out in the magic system. I haven't thought much about specifics on it yet.
Furthermore, to encourage balanced teams, the dungeon should also expect a good mix of fighters, mages, and clerics. So if we enter a 3 person dungeon with 3 of a kind, we'll surely feel imbalanced.
Mixing magic using mobs with non-magic using mobs would be good.