I've gone between normal and hard to balance out difficulty when I get too overleveled. I might give hard another shot now that I'm feeling pretty comfortable with the combat.
XC1 set the bar so high that it was basically guaranteed that 2 would be not up to expectations. The over half of the company was busy on BotW when XC2 was being made. It feels much less polished and unfinished for the series. I like some things in it, but it's soured for me more and more over time. To its credit, the world itself is as fun to explore as any Xenoblade and it did bring the franchise into the mainstream, which I do appreciate. I respect the work put into it, I just don't like the game.
XC3 is so far the best one in any way I can think of. It hasn't hit emotional peaks as high as 1 yet, and I think that may be my emotional maturity rather than quality. The side quests are genuinely enjoyable and I got weirded out when I realized how much the characters interact with the side narratives. I don't think I've seen sidequests quite like them, and I want more things to do it this way.