I'm mostly content with ME2's difficulty. Avoiding upgrades would definitely do the job, though.
I play mostly for the story, anyway. ME3 is the only ME with which I've ever picked up a controller with the sole purpose of enjoying the combat gameplay. I think that's a combination at work of ME3's great gameplay and my disappointment with a lot of the game's writing and dialogue.
A difficulty called "Insanity" should definitely be more challenging than the "Normal +" it is with ME3. I think the key is better AI and level design, not layering defenses as ME2 did. Easy for me to say, since I have no idea how to achieve either, but there it is.
Some of ME3's locales were creatively laid out, but the AI was too weak to press the enemy advantage. Within a few seconds, an aggressive Shepard could completely swing initiative in his/her favor.