Addressing difficulty in my game's design (It Never Ends) Thread

As usual, I am seeking feedback from other game designers for my current game in development, It Never Ends. For those who don't know, it's a mutating space shooter that is meant to have high replay value. It's also more of a thinking game than it is a twitch game, but it is both.

From the start, I've been getting rather uniform feedback indicating that the game is extremely hard. I have taken steps to make it easier, and the feedback improved, but it's still hard. My recent strategy is to include comprehensive hints within the game, and a Let's Play video.

So, I have two requests for the willing:

The first is to look at as much of the Let's Play video as you can tolerate. It was my first attempt with Google Hang Outs. Then try the demo and tell me your score.

The second request is to start a discussion on setting difficulty for a game; any game. Feedback is crucial for this, but do you have any other guidelines for determining difficulty? A problem with my game is that the alien designs are randomized, and therefore, the difficulty; that is a crucial design feature that I'm not willing to compromise on. I have already put systems in place to reset the difficulty when the aliens get out of hand.

You can download the demo and video here:

Misterdonovan.com

As always, I will reciprocate by providing feedback on your PC game.

Thanks!