For example, my level 30 normal mode NPC has items equipped. I logoff my high level character, then logon with a different let's say lvl 5 normal mode character. The lvl 30 items transfer to the lvl 5 NPC albeit unusable due to level restriction (yet visible to me). Great and this is fine; it just means I have to level up my character so my NPC can use his/her items.
BUT use the same example but with a lvl 30 nightmare character, logoff, log back on as a lvl 5 normal mode character and the nightmare NPC's inventory doesn't transfer to normal modes NPC inventory. The items are not visible as they were prior and instead the NPC comes equipped with stock items in normal mode.
IF I transfer those same items via the stash, they are then available to me across different difficulties so I then manually move them over to the NPC.
In my opinion the NPC inventory should act as an extension of the stash as it does when both characters are in the same and other times different difficulty modes. As far as I can tell, when the NPC "graduates" to a higher level mode, their inventories are not transferable thereafter.
I haven't tested this with hell or higher because I haven't gotten that far yet :) I understand there is a wall between hardcore and normal characters stash but I don't think it should restrict NPC inventory based on difficulty level and on the same account.