I played the game on Challenging mode and found it surprisingly easy compared to Telepath Tactics. I suspect one part of this is that I abused broken weapons a ton. My fighters were frequently so strong that they could still inflict significant damage even with broken weapons, which vastly reduced how much time and money I had to spend getting replacement weapons (which in turn let me fight more arena battles and get even more levels).

If weapon replacement is supposed to be a major factor in the player economy, it might be a good idea to disable broken weapons for the default difficulty.