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not created equally and hidden potential is a must-have
I also like to take aiming angles and absolute critical
Of these:
Not Created Equally, Training Roulette, and Hidden Potential generally make the game easier. (You can create super soldiers early in the game, which usually mean an easy cruise through the tactical side of the game.)
New Economy, Absolutely Critical, Results Driven, and Aiming Angles can swing both ways, depending on how a playthrough is going. (These are double-edged swords, in my opinion. They can benefit or harm you. Both aliens and your soldiers benefit from Absolutely Critical and Aiming Angles, for instance.)
Red Fog, Total Loss, E-115, Itchy Trigger Tentacle, War Weariness, Diminishing Returns, and The Greater Good generally make the game harder.
Damage Roulette is bs. (Unless you get a crit, you are going to do little damage on average.)
Of the other Second Wave options I haven't mentioned:
Marathon: This option...isn't really that fun. Just makes the game really long.
Alternate Sources: In a similar boat as Diminishing Returns, but much more critical in the long-run, since you need power for...well, everything. This makes power expensive.
More Than Human: See Marathon. Just makes the game longer since it takes more time to find a psion.
Save Scum: Really beneficial to your cause in general. Makes the game super easy.
Mind Hates Matter: I've played with this before. It doesn't really affect the game as much as I thought it would. You will have to be a bit more conservative with gene augmentation though.
Training Roulette is a must. It just creates so much soldier variety.
Beyond that folks have given a good idea of what everything does so it's your call as to what type of game you want to play.
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I'll plug it as well now since its also an option.
Long War mod.
Makes EW this almost a new game, and it is easy to tweak to be at the difficulty you like.