I disagree. There is already a game element that lets you choose difficulty, and that is the slider. There should not be a random element that makes a chosen difficulty level 2+ levels higher because of the faction you get. People already play around what you call sub difficulties, because it is not what they signed up for. I can understand that you have gotten used to it, like most of us, but that still is not good game design and i would not call it a feature either.
I am not sure what is even possible today, but it would be better if Lost Souls would be selectable, this way the game could acknowledge the higher difficulty and reward accordingly. It would create a scenario where people get get what they want to play, and those who want the extra challange also get a little more reward out of it.