I've been playing for a couple of weeks, increasing the size of the galaxy, and getting the difficulty up to Normal as I learn the ropes. The problem is that it's too easy. I am unsure how difficulty has been implemented. Does Challenging mode mean that the AI gets smarter, or that it just starts "cheating" - extra hurdles for the player that the AI doesn't have to deal with, for instance.

Do all the AI races just become crazy aggressive?

I ask because I want to feel that I'm playing against smarter opponents, not frustrated because the cards have become unfairly stacked against me. I've played some games where the AI is clearly operating under different parameters than the player, and it becomes a lot less fun. I suppose a little inequality is fine.

Are there any notes on how this is handled?