Thanks for the feedback. Just to be clear, the gear "upscaling" is a beta-only feature, just to level the playing field since most players in beta will not legitimately have item level 463 gear. On the live servers, your gear will only scale down, not up.
Regarding the use of "cheesy" tactics while running challenge modes, we're looking into ways of limiting some of the most offensive ones while still allowing for planning a tactical route through the dungeon to be a major part of the gameplay. Dodging patrols, using tools like Shroud of Concealment
to skip some avoidable enemies? Cool. Training through the entire Armory wing of Scarlet Halls and Mass Resurrecting on the other side? Not so cool.
As for rewards, the intent is for prestige to be the prize. When you are soaring around town on your Pandaren Phoenix, or showing off as your character becomes engulfed in flames when you /roar, everyone who sees will know that you earned those rewards through expert play, because you cannot outgear challenge modes, only outskill them.