George - did you get any further with this? We have a couple of colleagues who are talking about putting together adaptive learning activities after a recent meeting we had about Oxford's Digital Education Strategy where we discussed the language-learning app DuoLingo. This uses the learn by quizzing approach that you mentioned in your original post. I'm not sure how it deals with 'difficulty' - I love your colleague's idea of effectively using a sorting algorithm for this to avoid having to pre-determine it - but it adds in another dimension by taking advantage of evidence that learning is improved by repetition at increasing intervals. It does this by introducing the concept of half-life of words in long-term memory to work out when to re-test - see: https://github.com/duolingo/halflife-regression/blob/master/settles.acl16.pdf .
We're recent converts to Moodle Quiz - we plug it in as an LTI tool to our institutional VLE, Sakai - but are already delivering over 200 STACK questions to pre-arrival biochemists (they don't seem to have problems with the maths entry format); have created some 'authentic' assessments for embryologists; are re-using some of Dundee's elective preparation materials (delivered as a quiz) and are currently working on free-text text marking (using an extrernal api)...but it's taking a while for me to get to grips with the Moodle way of doing things.
However, we love what we've seen of the Quiz tool so far and would be very keen on something which was more cleverly adaptive. We'd be very happy to work with others to adapt the Adaptive Quiz or one of the other activities that Tim mentioned to be able to do this...