I found the difficulty a breeze. The sweet spot for me was world 3. By world 4, enough of the various characters were deep into their skill trees that nothing posed a challenge until the final boss. The post game missions were difficult even with the maximum number of upgrades with ultimate challenge 3 being my favorite mission of the game.
Once available, I ran Mario, Rabbid Luigi and Luigi almost every mission. Rabbid Peach was a good substitute for Rabbid Luigi in escort missions. Rabbid Mario was great for missions were you could capture a group of enemies clumped up. I wanted to like Yoshi/Rabbid Yoshi better, but neither was strong enough to stand up to the utility, movement and damage the rest of the cast provided.