I was glad you mentioned Final Fantasy at the end, as I'd been thinking of it the entire way through the article. The FF games do deal with the issue in exactly the right way, I think. It's one of the reasons they're so good. You have the story arc, with all the attendant drama, and then when you're done, and the story's over, you go looking for the challenge.
I'm both in equal measure, I enjoy the stories and the challenge, but I like to keep them separate. To some degree challenge based gaming is meta, you're not fighting the enemies, but the game itself. You can't fight the game and its minions at the same time.
Another excellent example is Devil May Cry. Normal difficulty is simple, and you see the plot, such as it is. Then afterwards you ramp up the difficulty and start honing your skills to ninja levels.
Someone mentioned Sartharion. The problem with that fight, and that mechanic is that when you wipe, the first thing you do is try to figure out ways to make the fight easier, to lower incoming damage etc. The first thing that occurs of course is that you could kill the drakes. The optional difficulty mode there can be reset every time you wipe, and the temptation is demoralising. The same problem will occur in Ulduar on the optional difficulties there. The interesting part will be the ultra challenging optional boss they've put in. You don't have to kill it, but if you want a challenge, it's available.
Essentially, challenge should always be optional, and never interfere with a good story.