Perhaps one could use an estimated group/army power rating to let them/us know what the recommended min. requirements are to successfully finish a quest?  My traveling army of 1 hero, 2 archers, 4, melee for instance would have a power rating of 150ish, so I know that a quest recommending I have 200 power rating is probably doable but not without some losses, the ai could use this same type of setup in determining what to send on any given quest (perhaps they need to go half again or double the recommended power rating to help insure fewer casualties.

Very easy, easy, average, hard, very hard, almost impossible

     25      ,  65  ,    135   , 280 ,   450      ,    800?

what about a specialized field plate armor that is customized for each hero/sov in the shop/blacksmith that absorbs the first melee/ranged hit per set of attacks per unit attacking

3 units attacking hero - first unit swings 3 times resulting in 1 miss, 2 hits - 1 of those hits is absorbed = 1 hit lands

                                - 2nd unit swings 3 times resulting in 2 miss, 1 hit - 1 is absorbed = no damage

                                - 3rd unit swings 3 times resulting in 0 miss, 3 hit - 1 is aborbed = 2 hits land

This wouldn't help with magic too much but then could have rings, necklaces, etc. that give so much magic resist

between the two heros/sovs would be considerably tougher

Never liked the HoMM approach of just rehiring them that kind of took some of the shine off a planned-out victory. HoMM IV had it better with heroes being imprisoned in the nearest town that you had to capture to release them. Perhaps having the same thing but then adding a Mount & blade/Pirates! style chance to escape every turn might balance it a bit. Having buildings like a prison tower could reduce the chance of escape. There should always be a chance the champion just gets killed, though. Maybe 10% for a new champion with a 5% increase of death per level, capped at 75%.

Or just a chance to lose items?

Or a chance to sustain new negative traits? I recall Derek mentioning a trait that reduced your healing rate to 1 permanently. Those sorts of traits could really spice the death thing up, especially if you provide a spell or a system to remove such death-traits. Could also open up for pre-emptive protection, cast a spell on someone and he can safely die sort of thing.

Maybe champions require a certain special building that they can claim as their own before they agree to join you? A castle, an ivory tower... If the champion dies it returns to whichever city has his building. Gradually you would be able to hire more champions up to a certain limit as you research new champion building types.

Maybe you can only build a limited numbers each type of the champ buildings. Either any champion could stay in any type of champ building (and perhaps the building that the champion resides in gives some sort of a bonus to the champ), or then different buildings are required for different types of champs. Castles/Palaces are for royal champions. Ivory towers are required for wizards, Grand Estates for all sorts of academics, underworld for thieves and other shady champs.

I would definetly prefer a negative trait route, they could stack upon each defeat, & could take a long time to recover from (lose the neg trait), and/or could cost so much mana to remove said effect - this would penalize losing your hero but would still allow them to stick around

& I'm worried about knocking out the # of champions, I like making huge maps & unless we can make champions ourselves, I fear there may not be enough to go around (I'd like to have maybe 50-100 major f'r'actions and @ 3 times the minor,  with as many wildlands as possible in my 'epic' game)

Can't say I like this system, I think it would hurt immersion and seem kinda tacked on. You would think that retreating exists for situations exactly like this. If the AI's champions are not getting away then maybe let them cheat a bit so that if they lose in PvE their champions automatically escape.

If you want to add an AI friendly way for champions to be resurrected instead of auto-respawn I would prefer to see something with more depth, story, and plausibility. A spell, quest, or item could be cool ways to do it. Even a spell you start with would be better than spontaneous anti-combustion. I think a higher level death and life spell would be better but it's up to you. You could even have a death one that requires you sacrifice one champion to get another back, or a life spell that allows you to take traits from fallen champions. Doing a quest to resurrect a fallen friend would be epic but probably hard for the AI. Having a rare item that you occasionally find that allows you to resurrect fallen champions would allow you bring the game back-story into it, instead of it just happening without explanation. 

Edit: I also like negative traits, and it would combine easily with any of my ideas.

I like the negative traits as well - and would add that some positive traits can only be acquired through negative traits. E.g.

Scarred Veteran
Requires: Three wound traits
Benefit: Absorb 1 damage from each incoming attack against the hero (thus when being dealt 7 damage, 1 is absorbed and only 6 are effectively dealt).

Having a couple of positive traits come out of a hero's losses goes a way to keep interest in the hero after he/she's been defeated.

Agreed, battles look really neat! In the second battle where two spearmen gets shot down by arrows, great animation!

That reminds me a bit of Mordheim, the table top game

I second that as well. Negative traits add a lot more character to a hero. Extra kudos if you can code it to make the table for determining the random trait based on what enemies or attacks the hero was defeated in combat with.

In fact, it would be kind of interesting to see a unit pile on all kinds of horrible traits with the more deaths, the more mangled the unit becomes until you would just want to disband him.