The Washed Up Hermit is a very strong character, with abilities giving him a total of x48 to his base damage, and he can function very well as your formation's main source of DPS.
However, 2/3rds of this damage only work when there's noone in front of the Hermit.
This first impulse you have when using the Hermit is to put him at the front of the formation, since that's the only spot where his full damage is active.

However, the front spot of the formation can't be affected by Sasha's Bulwark and Jim's Sharpen party, two skills that total at a 110% DPS bonus.
So by putting the Hermit at the front position, you are once again losing half of his DPS.

In order to get the most out of the Hermit, we need to think a bit outside the box.

the following formations are the best I've managed to find when using Hermit as the main source of DPS:

Triangle:

http://oi62.tinypic.com/fndczm.jpg

Princess
---- Hermit
Panda ------ Hole
----- Khouri ---- Nat/Nate
Kaine ------- Sasha
----- Jim
Lion

Diamond:

http://oi62.tinypic.com/v5xuh3.jpg

------------------ Hermit
----------Khouri ------- Hole
Princess ------ Kaine ------ Panda
---------- Lion ------ Sasha
------------------Jim



The intention of these formations is to get the Hermit in a position where he gets the bonus from all of the formation-dependent abilities, while still getting his own full DPS bonuses. To do that, we need to use a formation with one less crusader in it, and leave a hole in front of the Hermit.

Every crusader in these formations is there to provide either a gold boost, a DPS boost for the Hermit, or both.
The diamond formation uses the characters giving the best gold bonus, and after that the characters giving the best DPS boost. In the triangle formation, however, things are a little less clear.
Natalie, Nate and the Gryphon are very close to each other in their boosting skills.
Nate has 2 +10% skills and 1 +team DPS item, while Natalie has 1 +15% skill, 1 +team DPS item, and 1 +gold item.
choosing between them is a question of whether you want an extra 6% DPS, or extra gold.

the positions Princess, Nat/Nate and Panda are interchangeable.

Box:

http://i60.tinypic.com/1znocp0.jpg

Princess ------ Hermit ------ gryphon
-------- lion ------ hole --------
Nat -----------Khouri--------Sal
--------Panda----------Sasha-------
Kaine-----------Jim-----------Merci

This formation lets you get all of the characters you use in the triangle formation, with a few extras.
The hermit works even with the gryphon in the front row, since he only needs the spaces directly in front of him empty.
the characters in front should be chosen according to their team DPS equipment and skills.
Nate has 2 +10% skills, for a total of 21% before equipment
Merci and Gryphon both have +15%
Sal and the King both have +10%

so basically, if Sal or the King have a +DPS item 2 rarities above Merci or Gryphon, they should be used instead.

X:
This is a theoretical build, and hasn't been tested yet:

Nat-------------------hole
-----Panda-----Hermit----
-----------Lion----------
-----Kaine-----Jim--------
Princess-------------Sasha

use Merci or Nate instead of gryphon according to equipment


Edit:
I've been asked to add the levels of characters in this formation.
I level everyone to 100 and buy all of their skills, just because I'm too lazy to level each one to their relevant skills.
After that, I level the Hermit as high as I can, and I don't touch any of the other characters until just before I reset.

Just heard of this tip and I'm using:

Lion
-------Jim
Princess----Sasha
-------Khouri-----Natalie
Kaine-------Empty
-------Hermit
Panda

Not sure if this is better formation than your first one, using the same crusaders at least. I imagine Khouri buffs better in the center than back row, although I guess the buff to most of them are minor compared to hermit/jim.


Also in your dimaond build I wonder why you are not using khouri in center?

It's more or less the same, since Khouri's buff to anyone other than Hermit is insignificant.

In the diamond formation, I use Kaine in the center to get the most out of his gold buff. The extra gold is worth a lot more than having Khouri buff Sasha and Jim

For X formation, Hermit is indeed the best but your formation is not the best.

Try this:

Natalie----------------Hermit
-----Panda-----Khouri----
-----------Princess------
-----Kaine-----Lion------
Nate--------------------Jim

You can replace Nate and Natalie with anyone has better buff.

Hermit in front = he can active 200% dps buff on his own, because no one can stand in front of him.

Sasha buff is good, but you sacrifice one Crusader for it.

With my formation, you basically replace Sasha buff with Khouri buff, but gain another 33% buff from Nate.

And I'm confident that my Formation is better.

Bonus: Khouri can heal your front line with this formation also.

huh.
true about princess. forgot to add her.
that's what I get for working on the formation without actually using it.
need to see about the sasha/khouri issue. it might be better to use your formation, but I can't tell without actually checking

The difference is between Hermit getting Sasha's buff and Hermit getting Khouri+Nat/Nate/Gryphon global buff, whichever one of those you don't already have in the formation. Given that Sasha is only +40% while the other setup rolls with 35%+15%+item, it looks like a pretty clear winner.

Also, it looks like the cross may put Werewolf to use in same position OP has for hermit (plug the hole with gryphon for global boost, or shuffle panda in there) - Jim looks far enough to not violate his +200% selfbuff, leaving him with more personal multiplier than Hermit has.

http://prntscr.com/8cv0bo

I still don't consider them worth the effort, I've only done the first 2 on the new campaign.

I can probably do it fine with clicking cause of my clicking trinkets and I have epic 100% clicking damage and rare 75% swordplay on Bush but I just can't be bothered with that yet. So I'm still idol farming til around 10k idols then I may do the 300 X one.

as far as I can tell, the CE forums won't allow me to attach images to a post.
image tags won't work, and there's no way to directly imbed.

best I can do is to add links, and I'll try to do that today or tomorrow.
I don't actually have ready pictures for box and X formation.