I, too overlooked the individual difficulty settings for the enemy factions the first time I set up a game, but it's clear now.
An idea: why not have an option where the difficulty setting enemy factions are picked by me, the player, but randomly spread over the factions. So for instance I could choose 5 enemy factions; two of which are on higher difficulty setting (thus probably stronger) than me, one on the same setting, and two on lower settings (to create an early incentive for warmongering). It's only while playing that I find out which is which.
What do you think?