This is exactly the setup I was using for my current/last game, except at standard difficulty level. Now it's 1942 and Germany controls everything from Finland to South Africa, from Portugal to India (except Russia). Japan is in excellent shape as well, except having lost Foochow to a Chinese attack. The Allies have only 16 transports left and Italian fleets are operating unhindered in the Atlantic from bases in Gibraltar and Western France while the Luftwaffe bombs London.
I'll give it a shot with the harder difficulty. I've never tried it because I don't like the idea of giving one side free supplies. In strategic games, especially WWII, I've always liked the idea of using submarines and strategic bombing to make logistics a major difficulty for my opponent, making it much easier for me to take and maintain the initiative when and where desired. Of course, in WaW, supplies don't exactly work that way...but it still seems like giving free supplies would detract from the logistical part of the game. I'll try it though.
As for making more challenging AI opponents in wargames, I have a very simple suggestion:
2) Create an interface into the data of your program accessible by the script engine.
3) Document the interface. Now anyone who says "the AI's not challenging" can attempt to write their own. I include step 3 because most scriptable games that I've seen don't document the capability well enough for it to be useful to anyone except the original programmers, which kind of defeats the purpose.
Of course this would be some added expense and difficulty, but I think the payoff would be worth it. You could have competitions between modders' AI scripts and some really good techniques could emerge.
Failing that, make it possible to programmatically access the UI, so that "bot" AIs could be created by hobbyist programmers in whatever language they prefer to use. Same effect, but probably cheaper and easier for the game developers, although fewer modders could take advantage of it.