I can see what you're saying, but there's always other ways to interpret the character that can be just as satisfying. Batman Beyond: Return of the Joker, is a kids cartoon Batman movie. Yet it has one of the most wonderfully twisted Joker moments I've ever seen, and because of it is one of my favorite Joker moments ever.
Sometimes this is true. But the problem, as with many things, lies in censorship. Today the censor tells you that Joker can't kill anyone. Tommorrow he says you can't show real guns. Before you know it, you've got The Joker firing laser guns which only 'stun' people. When you begin catering for children you inevitably have to deal with prudish, overbearing parents who want to shield little Timmy and Tammy from death, pain and suffering.
Damn, just look what TAS did to Two-Face. The first two episodes he was amazing. But before long he was using a giant coin prop and hanging around the other villains. Gone was the complexity to his character, gone was the realism to match his surreal circumstances. No, he was bad. Why? Because he was.
When you write for kids you prostitute your own artistic integrity. It doesn't happen right away, but it
does happen eventually.
Adding the fantastical elements don't automatically mean Schumacher. That's foolish to think. You can have the fantasy and still be grim and serious.
No, you're right. Fantasy doesn't automatically make something akin to the Schumacher debacle. But it's a very fine balancing act. For every creepy interpretation of Man-Bat we
could get, we also run the risk of seeing The Joker unleash giant Christmas robots or, I dunno, turn The Riddler into an offensive parody of homosexuality.
Fantasy can often lead to bizarre plots and nonsensical interpretations of characters. That's what I favour surrealism, as Nolan has approached it. You get elements of fantasy, but it's more like a warped real world. Where the lunacy can believably coexist with the mundane.
Also, you can't will yourself through a lethal injury. No amount of willpower will keep you alive if someone cuts off your head. Two-Face would have been dead. And even if you want to go with the possibility he might have survived through that, no amount of will power in the world would allow him to move his left eye and jaw when the muscles required to do so were literally GONE (like the orbital muscles around his eye) or mostly completley gone and too far damaged to have worked (like what was left of his jaw muscles).
Ah, it's all suspension of disbelief my friend

Of course Two-Face could not realistically survive his wounds. But I never thought Nolan was besotted with 'realism'. Realism often robs a story of all its drama, imagination and originality. I like the idea of Two-Face being powered by will-power, hatred and self-righteous bile alone. It means he's always on the edge and is always dangerous. You really don't know what he'll do. He's in crippling pain, infection is probably setting in, he's half-blind. He really has become a monster, a monster whose sole purpose for living seems to be to make others miserable.
Despite his lofty ideals, I think Harv is really motivated by vindictiveness, ego and jealousy. Both in The Dark Knight and the handful of brilliant Two-Face stories in the comics.