I think that when you take damage, you should lose "upgrade"-type items (Red Ring, Varia Suit, Energy Balancer, Sword Extension, etc.), but keep "sub-weapon"-type items (pretty much anything with limited ammo). The former feel like luxury items that should be hard to keep, but the latter feel like a basic part of gameplay that you should keep until you die. Having sub-weapons should be a rule rather than an exception, and you have to manage the ammo supplies anyway. On another note, I agree that getting rid of the Bomb Bag/Quiver/Missile Expansion items was a good idea, but I think you should get the increased capacities to begin with -- you only start with a little and you still have to collect the ammo to fill them up anyway. EDIT: Maybe you can still lose everything on Hard? Maybe.