Farengar. Well, when I say Farengar, I really mean the terrible voice actor who sounds like he's struggling read each word.
I swear, every time I start a new character, being forced to talk to Farengar is by far the part of the game that I most dread having to play through.
FYI there is a discussion just like this here.
If you wear full Daedric armor in front of a Vigilant of Stendaar, he/she will attack you, mistaking you for a Daedra. But I agree, there is not nearly enough distinction. I stand in front of Tulius in stormcloak armor and swing my sword *barely* missing him, and he tells me "It's a nice day with you around"... wth?
It's less about making the game more challenging as it is about playing the character you want to play, and having it still be challenging. If I'm forced to strip naked and wield a dagger for a tough fight, instead of playing the ebony clad warrior I want to, then something is wrong.