Yeah, I watched the stream and I've got a few things to say about this:
-) Nothing (if anything) in the mod was specced with a Powersoul (or Master Fist) in mind. I fought and balanced everything based on a 'standard' team; if you want to fight with a Powersoul then I've no problem with that, I'm fully aware of how strong it is (I used it myself to decimate a French Hardcore mod a while back) and I also know how fun it is to use and that the majority of people would want it to be in the game, intact.
The reason I didn't spec bosses/enemies to handle it's potential damage output is because I felt that making an enemy tough enough to withstand a mechanic like Powersoul, Omnislash, KOTR, etc. makes those mechanics necessary, and completely obsoletes everything else. If a boss has enough HP to survive a barrage of Mimed Limits then Mimed Lv.4 Limits become the only viable option. The better thing, in my mind, is to find a way for as many mechanics to co-exist with each other as possible. There's also the chance that people wouldn't get the Powersoul until later; that'd leave them stranded to a degree if they then came up against bosses with enough HP to tank Powersoul damage.
Thing is, your situation isn't that simple because you've got people watching you play and they'll have different ideas about how Powersoul (and other things) should be used. It's ultimately your call, I'm afraid. That said, there's a weapon coming up for Tifa that might tempt you away from the Powersoul, or at least take some of the sting away if you do decide to drop that weapon for streams.
-) Sadness + Backrow: One thing I've been meaning to say is that you may actually be hampering yourself with this Hardcore mod set-up to a certain extent. With no Long Range, a lot of your physical attacks are dealing half damage and Sadness is crippling your Limit Breaks. When I re-balanced the mod for 1.2, the party were always front row with no Sadness because I didn't want people to have to take a defensive approach all the time as it slows the game down for them. There's actually enemies/bosses that are harder to fight with a set-up like this, because some have AI that triggers a powerful attack after a certain number of turns or which use magical/%-based attacks.
There are exceptions like Powersoul Keeper when it's under Death Sentence (the timer for which can be ran down in one turn using Full-Speed Active ATB; I think that's the trick the guys in your chat were referring to), but for the most part a front row team is more than viable in this mod. Random enemies were always specced to fight this; front row, no sadness, no barriers. For tougher enemies and bosses, it was still front row and no sadness but barriers were used. It's up to you, but I'd recommend being more aggressive with random encounters at least.
But at the end of the day, there's no right or wrong way to do things. Just varying degrees of efficiency. By the way, part of the update coming up is a new boss for the Alexander fight (it currently uses a regular enemy formation, which is double-lousy because that fight can actually be ran away from and be counted as a win). There's also another League bracket going in and a bunch of new random enemies to bolster the ailing ranks of my poor battered beasties. I'm aiming to have the update done soon(ish).
@LCP, I removed the item requirements from Extra Battle; they can be fought whenever now.