There are some nuances to the film that only Chinese viewers can appreciate--such as the dialogue, which in translation might seem perfectly reasonable, but which makes Chinese people laugh. We've seen enough costume dramas and period pieces, and have good enough sense of our history, to know what is believable and what is not. The way they wrote the dialogue, which is literary Chinese, but not quite, came off just hokey, especially when coming out of the mouths of Kaneshiro and Andy Lau. It's not just their mandarin is not what we are used to, but perhaps because in our minds they are part of pop culture, and thus you get some of the Keanu reeves doing Shakespeare kind of effect. It just falls short.
And this is not to mention how unbelievable the love story is. I can't fathom why people consider this top-notch acting. The most popular actors are not necessarily the best actors--there are plenty of underrated Chinese character actors out there that could have burned a hole through any of these roles. Somehow, some people believe that just because set up the right premises--love, honor, loyalty, etc etc that will you automatically achieve something profound.
Chinese people love martial arts and wuxia novels to be sure, but many of the people I talked to found Zhang Ziyi's xiao mei character dying and then seemingly reviving to be just silly. I would argue that in a movie that is patently a "fantasy" movie of sorts that you have to be fair and suspend disbelief, and they do say that she never pulled out the dagger in her heart, which is why she could stay alive long enough to utter some more hokum.
I also agree with others that a final showdown between the House of Flying Daggers and the government police would have provided more of a sense of "closure" for the audience. I say this because whenever you have a premise like the end of a Chinese dynasty, outlaw groups attempting the overthrow of the government, you've got a great set up for a story, especially it is precisely the end of eras and beginning of new eras (dynasties) which capture the Chinese imagination. In the chaos of a crumbling order, men are men, both the best of heroes and worst of villains is likely to appear. The bonds that tie human beings together are strained, put through the crucible of a cruel death for being on the wrong side.
Which is why it would have been nice if this so called romance or love story could have embedded in the larger framework of a story of the battle between the mysterious House of Flying Daggers and the remnants of the tang Dynasty.
one more note: the whole spy, double double crossing thing is getting kind of old, considering infernal affairs and all the other new cop movies coming out of Hong Kong. I see that cinematic ally, there are always more CG effects to use, to bring us into the wuxia world...but intellectually, HOFD shows that these mainstream Chinese films have already pumped the well entirely dry.