I've had the same idea about there being different blocking animations. (This is what you're suggesting correct?) Also are you suggesting that you be required to do different button inputs for each blocking animation even for the easier difficulties?

Now don't quote me on this because I'm not the "go to guy" for when it comes to building good fighting systems nor do I know a lot about martial arts (Even though I'm fascinated by them) but maybe your idea could work. The way I see this implemented is like this. Say your opponent does a succession of 4 of the same punches. If you were to hold down the block button your character would block those 4 punches except each in different fashions. Of course this seems to get more complex as how to work around this when you throw in where your opponent is going to strike and how he is going to strike. So basically I think the block inputs should be the same. 1 input to block high and the other to block low. The only thing that should be different are the animations if possible. Hopefully someone that has more knowledge about fighting systems and martial arts will chime in.

Good idea if they impliment it and your reward for correctly is that you don't lose any health. I would have the generic block on all levels, and if you use the general block you lose the health you lose, but if you correctly use the proper block for the attack (on all levels)--no loss of health or you get a breaker or something. Or maybe even health regeneration, that will give incentive to try and manually block.

I like both of your ideas. I would probably go with the one that manual blocking is an option throughout all difficulty levels. I like the no damage benefit, but there should also be a counter-hit option. If you successfully manually block a hit, you should be able to quickly counter hit or even throw your opponent. Traps wouldn't be a bad idea either. If someone throws a round kick at you, you can trap and sweep them, throw them or perform a strike on the leg. I do like the no damage part the best though. It would create some incentive to perform the block.