One of my first (and greatest) co-op gaming experiences was a child playing Contra with my sister. The Konami code that gave us both 30 lives allowed playing through the entire game. The extreme difficulty meant that my sister often would exhaust her 30 lives, at which point the game would let her tap into my extra lives. This had the benefit of letting her keep playing, while also challenging me to lose as few lives as possible. And because the game was relatively short, we could play through it in one go without our parents yelling at us to do homework or play outside.
I just started playing Renegade Ops with my girlfriend. She likes to game, but also likes to explore, collect (everything) and go at her own pace. One of the problems with Renegade Ops, though, is the timer that kicks in. And if the timer expires, not only is it game over, but the experience/items collected disappear and you start over. This isn't really a difficult mechanic, it's more about the timer mechanic that can hurt the co-op experience.
Going back to Contra, the most frustrating co-op level to play with some at a lower skill level was the waterfall level. The better player is actively going to kill the weaker, and vice versa, turning a co-op moment into a fun-killing vs moment. Vs gaming is a blast, the latest Mario Wii game really nailed it, but from my experience balancing pace is just as important to the co-op experience as balancing difficulty.