I believe it's the Ultimate Edition, so you receive all the expansions.  I do believe Dread Lords expansion is required. Twilight of Arnor completely reworks the game, which for some may change the experience too much compared to the Vanilla/Dread Lords game.  

I found the AI to be fairly competent at the higher difficulties. I think the difficulties are misnamed. Tough is the best AI without cheats instead of normal. If you play on normal you will stomp the AI, however, on tough you should have a pretty good understanding of how the systems work. Once you master these systems you can tackle the cheating AI modes. I know some people are offended when the AI has to cheat to win, but every AI to playing by the rules where the player has the option of exploiting the game mechanics. Brad did a pretty good job with taking user feedback and updating the code. I wish this practice was more profitable but after release support doesn't make sense for most developers.