I like the idea.
Besides, it'd make a LOT more sense to have the enemies on the continent get harder after you kill a Lieutenant; you just took out of one the Overlord's personal second-in-commands! You've gotten more of his attention!
Also the "Rescue missions in secret missions" thing is working great. Makes it far easier to get NPCs early on.
That does make more sense.
Still, I like the tier system for one reason: It keeps me from *ever* being overpowered for an area (with one exception). One thing I haaaaaaaaaaaaaaaaaaaaaaaaaaaaaaate about any game that uses RPG elements usually, is when I have to go to an area that's lower leveled than me. I dont WANT to fight easy foes and bosses..... in gaming, I can think of few things (ok, NO things) that I find more boring. In THIS game, the only time I've had to do that is the lieutenants, and this is because I keep forgetting to do them until Tier 5, and the lieutenant areas are ALWAYS tier 4..... right now, for me, this is the dullest part of the game.
But yeah, the challenge level would be my main concern for something like this. I like the fact that, say, bats sorta level up WITH you as you go along. They're always capable of causing some trouble. I'd really rather not ever reach a point when I've got some baddies on the screen, but I dont even really have to focus on them at all because their threat level is just that low. The tier system keeping things at least somewhat equalized means there's genuine threat ALL THE TIME (again, aside from the lieutenants at tier 5 bit, and of course this is also still dependant on difficulty level), and it also means that ASIDE from the lieutenants I never have to hit up a boring area, period.
Also, as Nanostrike says, the continent "levelling up" upon a leiutenant's defeat does make sense.... I can just imagine the Overlord getting angrier and angrier each time and sending out more and more monsters in response to people actually daring to fight back against him. That idea I definitely like.