This absolutely should exist for all modes, not just standard osu!.
I actually played multiplayer for the first time yesterday as an osu!mania player, and found a 4K room with a lot of people, which was awesome. I love having a great time with other 4K players. However, the issue that I was actually coming to find is that the host was typically picking a difficulty level that was a bit lower than I desired for very familiar maps. Don't get me wrong, playing lower difficulty maps is not something I dislike, but in many cases, I would rather play an Insane difficulty mania map over a Hard one. Skill variances between players actually makes it somewhat difficult for everyone to have a good time, because those who are less skilled have to try and trudge through higher level files if the host picks them, and inversely, those who are more skilled have to deal with playing easier maps than they might want. Adding this feature gives players the freedom to do what they want, while still being in the confines of a multiplayer game.
There was a point early on this thread about players trying to use strategy in winning against someone using a higher level, which I believe could be a legitimate issue; I'm sure someone could derive a formula based off of the star difficulty, and difference in objects between both (the host and those who picked lower) difficulties to apply a < 1 multiplier to the score that reduces the possible max score they can get within that multiplayer match. An awesome implementation of this would reduce the score only for the purposes of the match, but not for ranking -- if a player's score gets a multiplier of 0.85x and they get a score of 1,000,000, their score in the match would be 850,000, but their 1,000,000 would be sent to the score database as is.
