Good post, Heavenfall! You made me stop and think about where I stood on the issue, which I always appreciate. "As iron sharpens iron," you know. Still, I'm not entirely sure I agree with all of your points. If you don't mind, I'd like to provide a defense of the heroes-only quest idea.
First, what's stopping a unit of 4 men entering a ruin, where 8 champions can enter without a problem? Fear? Magic? Or are they simply useless at navigating the ruins? Those are weak reasons.
I'll admit, I hadn't thought of the "in-world," lore reasons for limiting (some?) quests to heroes-only. The strength of the idea really lies in the out-world, gameplay reasons. I'd say the in-world justification is that heroes have skills that set them apart from the other inhabitants of Elemental. They can scale cliffs, spot ancient artifacts and far-away glimmers, solve puzzles, and be the classic hero in a way a band of peasants or axemen simply cannot. If that doesn't suffice, then perhaps heroes-only would have to be justified on a quest by quest basis. But the alternative, where you can navigate the winding tower and defeat the treacherous wizard simply by throwing mass-produced swordsmen at him doesn't make for a terribly exciting quest. Smashing through quests with armies hampers the feeling of adventure that quests should provide. Quests should be a challenge of brothers-in-arms, of Aragorn, Gimli, and Legolas; not Aragorn, 14 swordsmen, 12 archers, etc.
Second, you'll most likely end up fighting enemy "army" units anyway inside. For example what Edwin99 talked about in example nr 2, 3 and possibly 4 above. Personally, I would just feel cheated then. The enemy can walk army units into battle but I can't?
I'm somewhat agreed on the point of "enemy army units," in that I wouldn't want to see "Barbarian Band of Peasants." But I wouldn't classify "evil lord and his guards" [example 2] as "enemy army units," but rather as an enemy hero and a small personal bodyguard (essentially an enemy RPG party). In so far as the quest justifies the presence of the enemies we're attacking, I don't particularly see the problem. I agree with you that we shouldn't be facing down an enemy -army- within the confines of a quest. It should be heroes and friends vs. villains and minions, not small band of heroes vs. giant enemy horde.
Third, it's important to maintain a connection between all aspects of the game. Segmented gameplay is not fun gameplay. Ie why did I spend all this time building cities and training armies if they are useless at doing something that should be central to gameplay?
I agree entirely with the thrust of this point. Indeed, you've got to have a connection between all the parts of a game if you want to have a fun game. However, my contention is that Elemental, in its current state, isn't fostering the right kind of connection between heroes and the rest of the game. What is the point of heroes? Cities and armies have a distinct purpose and contribute to winning the game, with or without heroes-only quests implemented. But as it stands, heroes are simply weaker army units with names and their own stat sheet. Perhaps segmented gameplay is bad, but differentiated gameplay is definitely good. Heroes need a purpose, something to set them apart from any other group of axemen. By limiting (some?) quests to heroes-only, you give them a very defined purpose. Heroes are no longer a mere alternative to mass-produced soldiers, but gain a focus that sets them apart as truly unique and important.
The alternative ideas you proposed, Heavenfall, are clever. I could even see how individual heroes could provide different benefits (-TIME, +GILDAR, +LOOT, +XP, etc.) based on their own unique traits. However, I think that the issue of making heroes "crucial" to quests and to gameplay at large still remains. Even if heroes added in certain extra benefits, the actual quest itself would still be a matter of stacking your hero with an army and stomping on the enemies. There would have to be something else added in order to make heroes a significant part of your kingdom. The drawbacks of not investing in your army, or in technology, or magic, or in your cities are obvious. What would the drawbacks of not investing in heroes be?