Yes to the first, no to the second. I can't remember any of the really hard games being very good. By the time I won I was just sick of the game.
I don't know. XCOM: UFO Defense was pretty hard the first time I played it, and still retains some challenge over the first half even though it's bugged so every difficulty is actually the easiest difficulty. I still rank that one as an all-time classic. But then, I'm one of those masochists who plays nightmare without potions, so take that with a grain of salt.

I'll take a controversial stance and say that casual, as it has been described in this thread, is a good attribute for a game. Another way I'd term "casual" is "easy to learn, hard to master." I think that's a pretty good description of WoW, which a few have called casual here. Anyone can jump into the game, learn the basics, and take part in pretty much every aspect without much of a learning curve, but at the top levels there's still a lot of room for skill and competition.
Another example of a casual game that I think is just brilliant is the iPod touch app "doodle jump." The game is very simple: you control a little monster that jumps from platform to platform going ever higher. You aim for platforms by tilting the ipod side to side, and can get temporary powerups to jump higher or rocket past obstacles. The gameplay itself is extremely simple and anyone can learn everything they need to know and master the basic skills in about 5 minutes or less, but especially if you start competing with friends for higher scores, it's easy to spend hours on the game. I've personally played it about 3 or 4 hours total, which is quite a lot since I don't even own an ipod touch.
Doodle Jump and WoW don't have a lot in common, but I'd like to point out a few common elements:
1. A simple interface that was a largely pleasure to use. Movement in WoW is as intutitive as it is in Dragon Age (virtually identical, actually).
2. Easy to learn, hard to master. I've already explained this, but I just mean that the basic gameplay is simple but leaves lots of room for challenge. On the surface, fights in WoW are stupidly simple: learn your rotation of 1 1 1 2 3 1 1 1... and don't stand in the green stuff. In practice, it's harder to execute than it sounds, and most honest players will admit to having directly caused or contributed to wipes. In Doodle Jump, it's the same thing: the repetition of simple tasks (jumping to the next platform) becomes more difficult with increased stress. The challenge keeps it fun.
3. Competition. No doubt the single-player fanatics will lambast me for this one, but I think the presence of competition makes even dull tasks fun and keeps gameplay interesting after the story has gotten old. Am I the only one who thought sitting in the front car seat became a lot less fun after it stopped being a competition to see who would get "shotgun"? After my brothers stopped competing with me for the best time in minesweeper on expert, I stopped caring about the game (94, if anyone is wondering).
4. Easy to stop, easy to return to. By this I mean the exact opposite of the old "finish the level or lose all your work" model. If a friend, work, an emergency, food, or just life calls, I want to be able to save and exit relatively quickly, and get back to where I was just as fast. I'll be glad when console games finally do away with the "reach the next save point" model.