To me, gamification is suited for making necessary but painful tasks fun (e.g. cleaning your desk, tagging media, memorizing facts), but not for deep learning (e.g. algebra, quantum mechanics, object-oriented programming). But maybe, at 26, I'm just not with the times.The thing to be careful about here is the use of "gameification".
There's gameification of the Internet marketing bullshit variety, and there's making things more gameful. The suits ate up the first term and associated it with rewards, points and extrinsic motivation. The latter is a not-yet-bastardised term which simply means to try and find ways to make more tasks fun, to try to make systems explorable, malleable, and allow for failure. Games teach best when you're exploring systems and manipulating them, seeing what they do, manipulate them again, see the result of that. They're very refined incidental learning.
What happens if you use bullshit gamification is the Overjustification Effect, where the rewards begin to dominate and crowd out the intrinsic motivation, as people begin to focus on those instead. Intrinsic motivation is your "deep satisfaction", and you are right that rewards erode it. This has been written about a lot by Alfie Kohn (eg. "Punished by Rewards").
I don't know of any research that shows that gameful styles of work, as long as they're not attached to large amounts of rewards, are bad at all. Having played with DragonBox a little bit this morning, it seems to do a very good job of being gameful, and extracting the game out of algebra.
Some things I noticed:
1. The game really highlights the malleability of numbers. For me, this was the deep revelation about algebra, and it took me a long time to get there. The way the game is designed using touch, lets you fling numbers around and place them on top of each other and such, and doesn't let players get hung up on numbers or placement. We get to the understanding that algebra requires very quickly. You seem to see that as a loss, but I see that as a really big win.
2. As with all educational games, failure is easy and not punished. I haven't found a way for the game to show me solutions, but in a classroom setting, that wouldn't be a problem.
3. I don't find the rewards any more or less motivating than a checkmark next to my work, so I don't think we'll see the overjustification effect here. They just say whether you did it right or not. There's no achievement system that could encourage play that might be harmful to learning, just feedback on the specific problem you were solving.
Feedback is required for students. Feedback is also a form of reward. So threading the needle is not easy, but it looks like DragonBox did a really good job here.
All in all, I think it's a really good piece of work, and the developers deserve to make a fat chunk of change from it.