Like I say.. try it with reduced starting forces and see what happens..

T55 vs defending US infantry = tough match up, especially in better defensive terrain.
To say WG was armed to the teeth is not exactly accurate. While the Bundswher was a formidable force, also consider the amount of US troops in Germany and the sizeable contingent of UK troops as well. The problem you are going to have in game is getting the AI to coordinate the defensive efforts of all the different western states. France and Spain both have plans to send expeditionary forces (the Low Countries already are incorporated into the WG position). If you ran all three (along with the UK ground forces and US support) the WP would face a far more formidble opponent, although what they have to face now is pretty nasty.
They may take out WG, but it is at a steep price and they don't do it every game. The other thing to consider is the WG position is pretty damm tough as it is for what it is.. remember, you are talking a state the size of Wisconsin holding off the entire WP and it just won't happen without help from the outside.
I agree on WP air units in that they need to have their bombard scale upward. We have too many things in the WP inventory that have a bombard of 20-30 and it simply does not get much done against a M1 or M2. Even Bears and Backfires have troubles with the end game tanks. As far as air to air, I don't know that there is a lot of tweaking required there.
As far as the AI goes and higher settings, besides the free start units, the only other thing the AI does is get cheaper rates on builds and a cash trade bonus. This does not in of itself mean the AI plays better, but rather uses the additional resources to its advantage. At the higher levels, the game looses the correct feel, especially as the WP side as you are supposed to be the side with the quantity advantage and the other side has not only quality, but quantity because of the massive discount it gets. I like working with the AI settings more with the agressive setting and also tinkering with the AI settings in the editor.
One other thing for the next revision and that is to figure out how to get the AI to build the pollution reducing wonders because in my games, pollution has done more to slow down the AI than a lot of things. They will clean it, but building the pollution reducers is not a priority at all for the AI. Perhaps giving the recycling center and pub transport a factor of 1 culture would give the AI the incintive to build them.