Cool game! I love the art style it looks incredible. The gameplay is fun and I like the combo system and shooting the different colored enemies.
To answer the specific questions you asked about:
1. No I didn't find the game super difficult or frustrating, I made it to the end on my first try. The last level was pretty hectic but I don't think I ever got hurt.
2. I think the direction you were going with the upgrades would be a good avenue for evolving the game. Aside from that more enemy types and stuff is always fun.