Whether or not you want to allow indestructible/recharging armour is up to you; depends how challenging you want it. :)
Went from 40% to 0% in one hit from a Revenant Rocket. That's 32 HP Damage!...
Oof, looking at the last few messages, it looks like he fired two rockets at once. :| Revenants are fast and if you don't take traits and equipment that boost your speed, sometimes they get a double move on you. This was just unlucky timing.
Even with MAD I'm still not doing enough damage to Arch Viles, Mancubus and Revenants with Tactical Shotgun...
Son of a Bitch trait is a huge help here. Luckily, MAD doesn't block it. ;)
Do enemies deal more damage on higher difficulties?(given that they're not elite/nightmare versions of those enemies)
I believe the higher the difficulty, the higher the chance to hit and at N! they also move faster.
...If so, then I don't know what I should've done for armour...
I see you have red armour at 100% durability in your inventory. That probably would have saved your life in this case, since it confers fire protection. (Not sure why you would be wearing 12% blue armour when you have a better alternative) Also, it looks like there was about a mile of safe territory to the right; I think it would've done you some good to retreat to a safe distance, possibly behind that crate there, so he can't shoot you back, then pelt him from outside his visual radius. Uses more ammo, sure, but you've got several hundred shells there, plus a plasma shotgun to fall back on if somehow you ran out of shells.