For the moment I just want to pick up on one point:
Bareheaded Warrior wrote:• Introducing rules that lead to your equipment breaking in certain circumstances, yes that is realistic in-game that weapons can break, but at a player level rather than in-game level, the weapons represent your Hero XP / Advancement Level, how exactly can you break your upgrade by hitting someone with it (and this would cover Rust spells)
This is an interesting one. I see it as more of a feature than a bug - opening up gameplay / design options.
A standard XP advancement system is strictly one-way, as far as I know. You get better over time and nothing takes your XP away. After all, it's a number representing your experience. The quests therefore have to accommodate this by assuming heroes will continually get stronger.
However, because Heroquest uses gold and equipment as its equivalent of 'advancement', it becomes both possible and believable for heroes to unexpectedly go backward in terms of advancement. If they lose a weapon to Rust or some other effect like being taken prisoner, they can be knocked down a couple of dice, at least for a while. Players will intuitively understand how this makes sense in terms of realism, whereas it makes little sense to subtract 'experience points' from someone (unless they suffer sudden amnesia or something ...)
The two systems might be achieving the same thing, but they feel different. Players may accept something in one system that feels wrong in the other. In HQ you can have a situation where you must work to maintain your current level of 'XP' / power level, rather than assume it's permanently earned. To risk another videogame comparison, it's like the Metroid games, where you upgrade yourself with new items rather than XP. In some games you will temporarily lose some or all of your items and be reduced in power until you find them again.
In HQ terms, it can be as simple as those quests where everyone's gear is stolen and they have to run around relying on their basic stats / unarmed stats until they find their equipment again.
A more elaborate effect could be to take the gear away for several quests--suddenly making weaker monsters like Orcs and Skeletons threatening again, leaving the players feeling vulnerable and nervous and increasing tension, until the cathartic moment when they finally get their stuff back and can go to town on the monsters again.
You could even have quests that permanently remove the heroes' equipment and/or gold, forcing them to essentially start the advancement process all over again. Because HQ has issues with a low advancement ceiling and maxing out early, this could actually be helpful over the course of a long campaign to maintain interest ... as long as it happens very rarely (like a one-time disastrous setback during the plot progression). Many people play Morcar/Zargon as a kind of theme park showrunner instead of an adversary, making sure the heroes have an exciting time without total party kills. Occasionally knocking them back down the advancement ladder with equipment/gold loss is another way to 'injure' a hero for several quests--and make them want revenge on whichever in-game villain did it--without outright killing them off.
(I've been playing around with permanently removing all the heroes' gold and equipment after the Gate of Bellthor quest in Return of the Witch Lord--albeit giving them the chance to find some of their Quest Treasures again a couple of quests later.)
Some people have suggested adding skills that you can buy with gold. I've been thinking along similar lines. The advantage of skills could be that they don't count as equipment and so can't be taken away by any of the effects above. The downside is that you can't give them to anyone else, or sell them (even if you're using sell rules).
The simplest way to include skills might be to just make them cards with a cost value on them that you can buy, just like equipment. No other restrictions apart from when you can afford it. The gold represents the training cost to learn the skill. A few skills could be Barbarian-only, giving him more options to advance.