Personally? New models, hands down. Challenge modes are fun, but I prefer raiding and totally new content rather than different modes of content.
So, it wouldn't be worth it to me to have them go back and do Challenge modes for old content at the cost of new models. A few Challenge modes paired with new content is just fine.
Character models, definitely! Right now it's like 8 bit Mario in a 64 bit world...
New content, new models.
World of Warcraft: 14 level 90s, main being Rorcanna the hunter. 5 years and still having fun! Currently unable to play due to technical issues.
Guild Wars 2: Level 70 ranger, mothballed. For an mmo it fails to keep me motivated big time.
Console: PS3 and soon PS4, Red Dead Redemption being the all-time fav console game.
Given the lack of interest in Challenge Modes by the community, I'd expect the majority to ask for new models and I agree, new models please!