actually, that's mostly through experimentation...heh, someone who cheated to get all the chips could've told you that (I prefer to try and find them all, and I'm missing about 25-30)..
As for the difficulty....it really varries. On the one hand, some of the new equipment (custom chips, like the one that autocharges your weapons or the one that gives a double jump) is very helpful, and you don't need to spend any time "leveling" your weapons anymore (which I kind of miss, but which saves a lot of time). In addition, some of the bosses are real pushovers even if you don't have the right element.
On the other hand, while most of the levels are straight forward, a few can be quite tricky in terms of mission objectives (like the annoying submerged highway stage, where you have to hit certain buttons before they are destroyed). Then again, if you don't care about rank, you can pretty much ignore those (and use all the elves you want). A few levels have "tough" spots, especially the weapon recycling factory (I think that's the one) where there's moment where you have to jump between boxes sinking in lava.
And some of the bosses are just....geez. I mean, I imagine some of the harder attacks are due to my save-state gained S Rank, but you'll still probably find a few of the bosses are quite tough, even when you know their pattern.
I'd say the game is overall easier in terms of playing the actual game than the first two, but there are more situations where you might feel totally helpless. It's an annoying tradeoff, but better than nothing, ne?