As long as we're on a fair sized island, minimum, for land available we should be okay. On both worlds that I've played it on we did some exploring for an MC day or two before finally settling (on my SSP world I actually spent closer to a week). Having access to water is actually extremely useful for two reasons: panning/sluices for ore, and fish. Without fish we will tax the wildlife to local extinction and eventually starve ourselves as we don't know how to make the farming work, if it is at all functional.
As for difficulty, since we'll be on a server I'd say Medium, as then we stand a chance of recovering from starving and spiders won't outright kill us, just mortally wound for the skeleton behind the tree. Hard 'can' be played, but on SSP where you can reliably fight things in melee combat.
Side note: we don't really need any other mods with this, unless you really want some kind of extra creatures to come and abuse us in the night.
