So what's everyone's favourite level? Both original and expansion in mind I would have to say city on water. The flow of the map layout is so perfect, as well as the architecture. Its the first level I think where I didn't mind the repetition of architectural parts and where instead they made the location overall look better.

The tarot challenge for City on Water has given me an irreversible hatred for that level. I agree with everything you said about it, but the tarot challenge is just so amazingly awful.
I'd have to say Hell. The actual boss fight is crap, but the level is a work of art that still hasn't been surpassed.

Military base is my favourite level!!!!! it is just like playing Conflict: Desert Storm but in Hell!!!!!!! very good!!!!!!

So far, Hell definitely (in the middle of BOOH). That they took the initiative to try something original rather than the tired Fire and Brimstone trope and then did it so damn WELL was awesome.
SPOILERS:
The choice to have a nightmarish eternal battlefield is an interesting idea by itself, but the choice to have to eerily frozen in time was simply pure genius. I loved it, it was really unnerving. Especially the sounds, although at the time I remember thinking there was even more they could have done with the sounds (why not have the voice of a shellshocked soldier spouting terrified gibberish in the trenches or children crying out for help in the city? That would have freaked me out even more).

The arabic level(s). They were straight-forward and very encaptivating.

The damned village level. Of all the levels in a plotless game, this one seemed the most able to tell a story.

Not sure I could pick just one. I have a few different favorites that I love for different reasons.
Gameplay:
Theme/Focus: Town
Tons of zombies + tons of stake gun ammo = FPS bliss :D
That the tarot challenge involves taking advantage of that is a really big, delicous megasupercherry on top.
Balance/Pacing: Military Base & Abandoned Factory
Both of these I love for their pacing/gameplay. Military base gets bonus points for that real cool ambient military echoing voice. Also: Tanks. Abandoned factory however is probably my favorite in terms of pacing.
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Artistry
Overall Style: Hell
Same reason as everyone else who likes it I imagine. Would have been perfect if Lucy needed to be hit more than one time.
Music: Babel
I hate it when music sounds pretentious/overdone, which makes me hate many remixes. When music manages to strike the right balance and feel epic but not like some amature decided to just make it sound extreme, however, then that greatly enhances the experience for me. The music here has that balanced epicness and enhances the sense of awe at being at such a famous, mythical, mysterious place so well. I love it.
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Honerable Mentions
First couple of levels, because they made it clear this game was going to be awesome. Reminds me of an article I once read that critisized FPS games for making you start with a pea shooter and said something along the lines of "Why not start with an awesome weapon and go *up from there*?"
First boss, same basic reason as first level. Unlike many bosses in games of all kinds it was neither puny nor cheap/hairpulling. Just totally awesome and a sign of what was to come. So full of crazy, giddiness-inspiring badassery it can stand out of the range of many of your weapons and *punch you*. I mean, I've just now grown more chest hair simply *talking* about it. It is enough pure unbridled badassery to make John Wayne faint like a damsel in an old movie.
---Edit---
No italics? Awww. I've used * instead then. Bold and underline just didn't feel right for those uses, as they make it stand out too much.
---Again--- General tidying up and fixes. Preview mode would be nice :/

The lab from the expansion pack, nothing can beat that awesome gun (yeah, it's even more awesome than lightning-shurikens) and hot nurses with jiggly boobs.
The military base was also really cool.

Docks.
It's like an insane trapeze act, making leaps of faith between the giant cranes that tower over the level. Searching for all the secrets was hugely rewarding on this one thanks to their good hiding spots, tricky locations and the high-flying altitude required to reach them.
I love spotting a holy relic and thinking "That's impossible to get to!" and then eventually figuring it out. So satisfying.

Forest. It's the hardest level in the game, made even better by the fact that it throws more enemies at you at once than the rest of the game. Which makes it even more satisfying to blow them all sky high. Plus the fight music for it rules.

Hell. Its design and idea are great.

I've only played the first one, and I have to say, it's pretty shitty.

The first level? I wouldn't let that sour your outlook on the rest. The great thing about Painkiller is that it's free to create just about any level it wants without worrying about continuity. There should be something for everyone.

In all fariness, I only played the first level when I bought it Monday but have been busy as hell since then with projects and research at school. I have really high expectations, don't worry, I have wanted this game since it came out.