Another anecdote: I did something last year that I'd never done before--I opened a copy of Return of the King, by Tolkien, and started reading. I've read Lord of the Rings several times in my life, but each time, I started at the beginning, where the story is told in a fairly contemporary (for the 1930s) voice, and by the time I got to the last volume of the trilogy I was caught up enough in the tale that I was paying less attention to word-choice.
Holy cow is there a contrast! By the time Aragorn leads his armies to the gates of Barad-dûr, the narration is in a massively antique style, like this: "This then was the end of the debate of the lords: that they should set forth on the second morning from that day with seven thousands, if these might be found; and the great part of the force should be on foot, because of the evil lands into which they would go."
A lot of what's happening here is that he is matching the language to the world-view of his characters. The basically-Edwardian hobbits get more familiar language; Kings with swords get langauge more suited to Le Morte D'Arthur.
In the appendices, Tolkien himself notes that "I have also translated all Westron names according to their senses." Sam Gamgee wasn't actually named Samwise, he explains. He was "actually" named--no foolin'--Banazîr; Merry Brandybuck was "actually" named Kalimac. Tolkien goes on to note, "It seemed to me that to present all the names in their original forms would obscure an essential feature of the times as percieved by the Hobbits...: the contrast between a wide-spread langage, to them as ordinary and habitual as English is to us, and the living remains of far older and more reverend tongues."
Of course, Tolkein has a relationship to fantasy literature not unlike that of St. Paul to Christianity. He didn't actually invent it, but no-one else who didn't can claim half so much influence over how it developed.
Traversing his giant footprints, we expect our fantasy heroes to talk like medieval knights, or, failing that, like well-educated Englishmen of the early twentieth century. If they don't it runs the risk of seeming jarring and wrong.
A recent project of mine ran up against this when I decided to give one of the characters a markedly contemporary voice, despite the story being set in an unspecified low-tech time.
She stepped close, her nostrils flared. "You smell good." Her fingertips traced up his bare flanks. The head of his cock bumped against her navel.
He took a stumbling step backward, and her expression clouded. "You are not allowed? You must stay pure for marry?"
He flushed--calling an Ensan man of his age and class a virgin was an insult, though he knew her question was not so intended.
"I've been with plenty of girls," he said defensively, and climbed out of the water to begin toweling himself off with his shirt.
She followed him and stood streaming and naked on the rock beside him. "You choose your women well?" she said teasingly. "They bring you much honor?"
"I'm....really not sure what you mean."
"The women you have fucked: they are brave? Rich? Clever?"
She sighed in exasperation. "Their honor is yours. Choose wisely, or you lose honor."
"I'll...um...keep that in mind."
She was still looking at him steadily.
"I just..." he began. "It's not right for women to be so...aggressive."
She looked taken aback. "I beat you in fight. Right of arva is mine, of fuck-choosing."
Now he was indignant. "You mean you think now you get to....to take me whether I want it or not."
"No." She smiled, and all her many teeth showed. "I am too... niiicccccce." She drew out the word into a dangerous hiss. "I will not force you." She stepped forward again, and her nipples were brushing against his bare chest. "Lucky for me you are wanting it so much, hmm?"
Personally, I liked the effect, but several people I showed it to, including a Circlet editor, found it unpleasantly jarring.
These challenges get even hairier if we then try to add the element of explicit sex. Readers have very strong tastes in sexual vocabulary. Particular word choices can be powerful triggers both positive and negative. This is true in any erotic writing, of course, but a fantastic or historical setting can complicate things still further. I'd love to see a round-up of instances where the language of fantasy erotica was done particularly well or poorly. I wonder how much consensus we'd actually have about which was which...