I didn't play enough of the beta patch to get a good feel for the changes (most of which were after Cyseal). The little feedback I saw was mixed on whether it was harder or easier. I have not tried the Source Difficulty mod, but I'd guess this update wouldn't replace it in terms of the challenge.
The goal of the recent changes was to balance some of the mechanics of combat, rather than the difficulty. The actual harder difficulty mode will include changes to enemy composition and tactics, etc.
If you wish you can try out the updated version and switch back to the copied previous version. You would run into an issue with the latest version's change to the playerprofiles.lsb file, though, due to the added support for Steam cloud. The new version will overwrite the file (most people not having multiple versions of the game) and just save the active profile name (scanning the PlayerProfiles folder to get the list of profiles on startup, rather than getting them from a list in the file). Older versions of the game will not understand the file format, and prompt you to create a new profile on startup.
Do not create a new profile using a name of an existing profile - the game will overwrite the folder, wiping out any saves in the profile.
It would be easiest to make a copy of the playerprofiles.lsb file (in ..\Documents\Larian Studios\Divinity original Sin\PlayerProfiles ), and restore that after playing the updated Steam version. Otherwise you can create a new unique profile in the old version, and then copy/move your saves from the existing profile to the new one.
