I think Proud mode also doubles the damage you receive. It would necessitate more strategic battle plans, just to avoid getting killed. I actually gave it a try in Birth By Sleep, and you've really got to stay on your toes.
And yes, I suppose one could just grind up to make up for it. But that's a conundrum that all experience-based games tend to run into, unless you scale the enemies with the player. (And even that brings its own set of issues.)