The type of game you've described in this thread that you play and DM is one I would find horrible to play in. A D&D game where players brought in knowledge that their characters would almost assuredly have no knowledge of and were applauded for it would be a game I would leave and never go back to.
In another response (about a code to defuse a nuclear bomb or something similar) you rhetorically asked that if there is no challenge why bother?
Why bother? Because it's a role-playing game. And I'm playing a role. There is no challenge in breakfast, but I've had great fun role-playing breakfast (and other meal times). Thinking as your character, talking as your character, acting as your character, doing the things your character would do is incredibly fun. I've played D&D where my character felt little more than a widget and some stats and other times I've played D&D where my PC has a personality I knew inside and out. "Gratuitous play-acting" - as Elfcrusher called it - is what made my most memorable D&D games so memorable and something more than a computer game or board game (both of which i like. But I play RPGs for something different).
I don't primarily play RPGs to overcome challenges by any means necessary. Or even by means of using information my character wouldn't likely have. Heck, I don't even primarily play D&D to overcome challenges. I play D&D to play a role and have fun. The adventures we go on and challenges we over come are the means to that end of having fun and playing a role.
Now, I can't play D&D and totally separate character and player knowledge. But there is a difference between interacting with the game world based on what the player knows and interacting with the mechanics with what the player knows. As an example - exactly what is the character knowledge for a divination wizard and his two rolls he gets to replace a day? How does he know what the die rolls are?
TL;DR - I'd rather play in secondhander's game with people getting into their roles and trying to think and act as their characters, even if they aren't very good at it.
The thing I don't understand is why you (and others) think that everything has to be play-acted to make the play-acting fun. Sure, some of my most memorable RPG moments are from the pure improv acting as well.
The thing is, those moments of pure inspiration are the exception, not the norm.
Most of the play-acting ends up being rather mundane, and honestly I get tired of non-professional actors trying to be "in character" for everything. Much of the time my reaction (un-voiced) is, "Yes, yes, I
know your character does that. Tell me something new." I just don't find it interesting to hear the Barbarian describe, yet again, how he howls the war-cry of his people while recklessly hurling himself against his foe yadda yadda yadda.
What I love are those moments when somebody does something unexpected because of their character. And sometimes it isn't something that necessarily fits with their character so far; sometimes it's the player having a great narrative idea and deciding on the spur of the moment to take his character that way. And maybe after the session he fleshes out his backstory a little bit as a result.
After all, isn't this what "character development"
is, in literature and cinema? The unfolding/discovery of a character over time? And the wonderful thing about it is that it doesn't depend on the player's acting ability. Heck, it can even be 3rd person. It's the actions/words themselves that delight us, not the quality of the delivery (nor the monotonous consistency of it).
Now, as this relates to the "challenge" part, when players can think of an interesting/novel way for their characters to struggle with a non-challenge (meaning that we, the players, know the answer but our characters do not) then I'm all for it. If I'm inspired with a way to narrate my character's ignorance in a way that I think will surprise and delight the other players, and develop my character's character, then I might do it. But to sit around flailing on a non-challenge just because our characters would is, to me, exceedingly dull. I won't pretend to not know about trolls or whatever just for the sake of adhering to "being in character".
Let's take the example of the catacombs and the holy water, where I know my DM likes to use undead. I suppose it's possible that I might think of a way to
not bring holy water such that it will add fresh perspective on my character's personality, but honestly as I write this I'm stumped as to what that might look like. (Maybe I'm a miser and unwilling to spend the gold. Yeah, that works, I could see doing that. But not if I just did that last session; I want to surprise my friends, not bore them.) So I'm not going to intentionally gimp myself and my companions for the pointless exercise of remaining in-character.
I can hear the howls of protest: "staying in-character is not pointless! it's ROLE-PLAYING!". I beg to differ. It's
one aspect of roleplaying, and as I've said before not a particular interesting one. Sure, it adds a component of "challenge" to roleplaying, in the sense that it would be a challenge to only ever use your off-hand to roll the dice, but one that doesn't really add much to the narrative richness. It's purely an exercise in...discipline?
Oh, "immersion."
Yeah, I just don't buy that. I don't believe that form of immersion exists in RPGs, not when you're still rolling dice and speaking out-of-character and drinking caffeine and everything else that goes on at the table. It's not immersion, it's adherence to the artificially imposed requirement of staying in-character.
Immersion is what happens when you feel the same emotions as your character. And since you, the player, know there's probably going to be undead, or that you need fire to kill trolls, or that the 13-year old playing the rogue is going to screw over the party yet again, then you are simply not immersed when you pretend otherwise.