Exactly, such immersion is sometimes good and sometimes bad. Some people use it in a bad way and some people use it in a good way. Monty just described the good way to use it, in my opinion. On another note, the thing that Implo suggested, about just hiding their level could have some potential. If you would just see the location and not the level it would greatly reduce "metagaming marches" because people wouldn't know what to expect.
Although as it seems the source code is needed for that aswell.