I usually choose hard and then go through again in the hardest, because usually the hardest is locked as well (E.g. Gears of War). If the game allows the hardest setting and it looks easy (E.g. Darksiders) I choose the hardest from the start, for the challenge and the achievements.
If it turns out to be too hard (I decided to play Halo Reach on Legendary from the start and I'm not any good at FPSs) I get frustrated after about 2 or 3 hours and restart on a easier setting.
It does also depend on the game. I have no problem in going through a FPS again since it's more or less the same and it's fun. Going back to the start of Darksiders is not so nice because you get lots of abilities and stuff during the way and starting with nothing of that (but the armor) is slightly frustrating.