The problem I see with a HH setting game is variety. If you break it down by legion, there is a very small range of difference between each Legion (the Primarch and maybe a signature unit or two). If you break it down to traitor vs loyalist, you consolidate those differences to make larger ones, but at the same time you minimize the number of playable factions.
The advantage, I suppose, is that balancing becomes easier, but at the same time is watching what are basically the same armies fight one another all that engaging? I would say no to that, personally.
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