Yeah, the game doesn't end at the balrog, because I figured people would want to keep playing after they possessed the final boss form. In fact, if you live to floor 20 and above, I think, he starts spawning as a regular mob.
There are no new mobs in the higher floors, but their numbers do keep increasing.
I'm glad you had enough fun with it to actually go through all that effort using a VM to get a save function. You're probably right that the difficulty curve may need some adjusting, I haven't gotten past floor 9 myself on a legit playthrough.