So after reading the manual, it said that on Hard/Nightmare, the only difference is in gold gained and hitpoints.
Well, after playing through the singleplayer tournament a few times now both under Normal and Hard, I noticed that on Hard the AI gets a lot more experience too. In fact, I was trouncing them and then suddenly my entire team gets wiped out and I see them being 6 levels higher than me (and 8 than the rest of my team) and eventually after an hour of battling, it was simply impossible to beat them because they were all level 20, while I was the highest with 16 on my team. They also had no problems tearing through my team's almost fully upgraded forces while their citadel was still level 4 and didn't even have priests. In fact, they regenerated faster than all my team's damage combined could deal to them and they still killed all of us while we were standing at the base health crystal.
So I got rather annoyed at that and went through the files to see what the deal is. I found it in dgdata.zip/lua/game.lua.
The AI on hard in fact gets 1.5 times the gold AND experience (not hp!) than the human player and his team. On nightmare 2x as much for both. Not exactly what the manual stated.
So I then went on to change that to a smaller boost and put the file back into the dgdata.zip at store level (uncompressed). Well, problem is now the game won't run because of an MD5 mismatch... So I reverted to my backup and created a lua folder both in the main game folder and under bindata with the game.lua, but the game refuses to acknowledge its there.
So how can I mod this game for an actually enjoyable gaming experience?