I'm replaying the game again as I work on the translation, and I'm reminded of one interesting point: Stylistically, Xanadu II was pretty clearly influenced by Tales of Phantasia on the SNES. The main character and sprite design, the town aesthetics with vaguely western-European traditional music, and other minor things are very similar. It's not a rip-off or anything, just influenced.
Also, if you want to make the game more challenging, the answer is simple: don't grind at all. Unlike many games, this is a realistic challenge for even casual gamers. I'm finding that where I used to grind during other playthroughs, I can now just pass through and reap higher benefits from later enemies.
This would be a really good RPG to try speed-running.