I don't think level 5 units are essential, but they are nice for absorbing hits I guess. A lot of people seem to like Cyclops but I highly recommend Red Dragons if you can find them.
For me the hardest part of the game so far was roughly from battles 50-120. That part dragged on for a long time and I did a lot of island hopping to fight the weakest possible enemies. 120-250 has been much easier.
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