The difficulty setting only affects renown percentage, and you can custom tune it in options, gameplay before starting a patrol. The AI is totally unaffected by easy hard very hard whatever, those settings only set the sub's handicaps like realistic battery discharge, sensors, torpedo reload speed, etc.
Main reason I don't play with mega mods is because all of them seem to focus on making the AI harder to beat, and to me the stock AI cheats by using the Psychic Friends Network to find out where you are. The basic programming for the AI makes them either so stupid they can't detect you 500 yards away in CAVU conditions or so clairvoyant they make a beeline for you from 100 miles away. The mega mods don't help that, they just raise the average to a higher level.
There's a whole thread on this with some solutions;
http://www.subsim.com/radioroom/showthread.php?t=210786