Regarding levels, I've hit level 8 with some 15% over without unnecessary kills. Before beginning the last fight. I never go without Pet Pal, though.
It's mostly about finding as many of the experience triggers as you can. That is mostly completing quests and visiting locations, not so much combat. Most importantly, doing everything that has an order in that correct order.
My very first playthrough, I did things way out of order and only had level 7 by the final fight, because I skipped experience gaining triggers. Still beat it, after several tries. I've also never won by letting the worm fight the magisters and waiting it out.
I don't think the difficulty changes exp gained.
As many people can demonstrate, Classic is doable and not even that hard. Assuming of course, that you have a good party composition and not throwing too many points around where you won't use them.
