Okay. I know I've been here and asking 100 different questions about 100 different games. This is another one, but I hope this one can be helped better than the last 99.

I want to use D&D 4th edition to run an odd game.

Everything will be based off D&D... Just because it's easier that way. But anyways, the idea is that the PCs will be people in a town. There will be quests and all that jazz but thats not the main point.

In the town there is an arena.

From there, I would like the PCs to do PvP.
But not just PvP... Odd PvP battles, maybe american gladiator style q-tip fights or Kill the other player before he kills you kinda thing.

From there the players that aren't in the fight would be able to bet gold on the two fighting and get money.

Players would gain EXP from their fights. And gold of course.

The questions I have are.

-What would a good penalty for death be when a player loses to another player in a Duel to the Death type match.
-How would I be able to rank the amount of EXP a player gets for winning a duel or Colosseum battle.
-How could I keep my players wanting to battle each other in more than just fight to the death type battles.
-How can I make my players differ from each other, like weapons and armor.
-How could I make 1 player quests so players can get different armor or weapons along with a little story action and some PvE
-How can I keep my players from out leveling each other.

Thats all I can think of for now. It's quite late and I'm kinda tired. If anyone could help. I would be extremely appreciative.

This isn't much of a First Thoughts topic. More like Actual Play... or even Story Games.

Doesn't sound to me like it'd be easier to use 4th edition D&D for this of all possible things. You'll have to solve some fundamental issues, such as the fact that the D&D character classes are not balanced for one-on-one fights, which would make some certain classes superior to others in that situation. The way I'd compensate for this would be to allow the character levels to float freely and allow the players to negotiate the matchups - that way it wouldn't be your problem if the players found a 3rd level druid vs. 1st level fighter match a good idea, or whatever. Characters from classes that are disadvantaged by the peculiar duel conditions could then be balanced by having them fight lower level opponents. In other words: forget making balance the GM's responsibility.

If you're willing to make the sacrifices in the game's structure and assumptions that this sort of thing requires, though, I could see having a lot of fun with this sort of campaign. At least the following thoughts come to mind:

• To-the-death fighting is a non-issue, you don't have to make losing mean death. It doesn't even mean that in 4th edition D&D; characters have to deliberately kill their opponents or wait for them to fail that bunch of death checks before they kick the bucket. If you're worried about players killing each other's characters, then make death fights something the arena organization advocates (and covers legally) only at certain dates or special events.
• I'd have winners on the arena gain gold, magic items and xp, while losers only gain some lesser amount of xp and gold. The amount of gold would depend on the type and prestige of the fight; I'd perhaps go as far as to track some sort of fame indicator for characters to use as a basis for payouts. Special tournaments and such would of course pay out more. The amount of xp would depend on the opponent, mostly; I'd probably go by the book on that, except that I'd give the loser something like half the xp they'd have gotten if they won. No need for additional penalties for losing aside from smaller payouts.
• I'm not that hot on the novelty fighting idea; of course the arena could be flooded or whatever to make for some new terrain, but for this sort of campaign to appeal the players have to already be invested in the combat system of the game. Making mockery of that isn't so interesting, I think.
• Were I running something like this as a campaign, I'd go for rich nuance in the setting and situations the characters face. Weapons would be bought with prize money, perhaps magic items would be won as prizes or bought, that sort of thing. Fictional elements ripped from sports drama, obviously; stuff like cheating, coaches, managers, whatever. Some character-based motivations for continuing the life of a gladiator - perhaps it's just a really big deal in this large city to be a sports celebrity or something.
• It's pretty obvious to me that I'd run this sort of campaign as a character stable type of endeavour: let the players design new 1st level characters freely as the mood strikes them, so they can build a range of different fighters for variety. Of course I'd also have some NPC fighters, monster fights and that sort of stuff to provide more spice. Could go for some team fights on the arena as well.

So it's a valid campaign framework, certainly. D&D 4th edition would perform pretty passably after you rip out the dungeoneering guts, I imagine.

TWP,
  Well, one thing that is central to D&D 4e and would provide an interesting challenge is a race. Movements is strictly regulated and there are all kinds of movement powers as well. Certain builds are at a decided disadvantage. But for the rest push, pull, slide, fey step, etc. could add a decent amount of excitement.

  Also, a debate that uses the social skills and their mechanics could be fun.

  Also, basically, the amount of time you spend on this arena is going to determine how central this arena is to your campaign. If you don't put a lot in it, it will be an interesting diversion. If you go all out, it will dominate your campaign.

Thank you guys. This is going to be quite exciting. I'm also running an All Flesh Must be Eaten campaign. If anyone knows a site or tutorial that would help me be a better DM I'd greatly appreciate it. I just need to understand how to organize my storyline so that I know whats going on. I'm not sure how to DM, I've never done it before. Thank you guys for the help though.