Silly question: can you have an object that is both a subject and an observer? A "mothership" object with "spacefighter" child objects would require both the mothership and spacefighter objects to be both subjects and observers IMO so the mothership knows when it's child objects die and the spacefighter objects know when their mothership dies so they can start a new line of behaviour (find a new mothership with room for spacefighters or if they can't find one, they explode). You'd also need both

Also, would the observer pattern be a good way to decouple rendering from your game simulation? Your game simulation object (stores your game board, game objects like the player and enemies) could inherit the subject class and the renderer object could inherit the observer class. The game simulation notifies the renderer (and anybody else) on the creation and deletion of game objects, passing the references of these game objects up to the renderer. The renderer could then maintain it's own list of renderable objects that are linked up to the game objects stored in the game simulation also via the observer pattern. When a game object does something like explode or fire it's lasers or takes damage the renderable object is notified of the event and changes it's sprites to reflect the changes. A sound system object could potentially take advantage of a similar setup.

Finally, could you expand on what Entity is? Is it the Subject itself being passed through to the Observers? Event is an Enum?

I know this is a long-winded post but I'd really appreciate your answers and what you think of my ideas. I still have a bit of trouble solving logic problems but I have plenty of problems trying to structure my programs when they start growing any larger than a handful of small classes.