It's a good idea that is in many top down action RPGs and I like using them but it makes repeat playthroughs less of a challenge.
Depends on how one goes about it. If someone wants to just cream everything, they can. If they want handy items, they can do that too. In most "New Game +" systems, the whole idea is to have a hay day on the game's ass.
You just use the equipment that your level 50 character uses when you are level 1, including all "cheater" builds like 100% magika resist or chameleon. In that case, there would need to be item restrictions of some sort, strength requirements and the like, but when you find a nice piece of armour, why couldn't you just slap it on and wear it?
Why?
Right out the gate, a new player can make a new game and within two hours have 100% Chameleon. There are potentially ten item slots, and a sigil stone in Kvatch. Two hours - less if someone knows what they're doing.
Helm
Armor
Gloves
Boots
Greaves
Shield
Ring
Ring
Amulet
Wrist Irons
10% each = 100% Chameleon.
I'm on the fence because it is a handy feature but can be abused.
It can't be abused any more than the current game.
Besides, I'm a big boy and I can make my own choices. If it ruins the game for someone, they can stop. Some people enjoy mashing the crap out of the bad guys too, so let them. In this case however, if I want to give an awesome sword to my niece who has no clue but is only level 3... That's really okay.
If people can't restrain themselves from ruining their own game (or correcting it once they discover they're bored), they're too stupid to be here to begin with.
I'm a big boy. I can make choices and take responsibility for those choices. Again, if someone doesn't want it, "don't use it." There's no reason in the world to restrict everyone else's experience based on one person's inability to control themselves or use their head.