The AI is not as good as a real person no, but its more than good enough if you have the right setup. The issue comes down for me to the fact that the healer is a bit rubbish. Later in the game when things become challenging you're kinda screwed if she's in your party. No real damage dealing capabilities to speak of and huge recharge times on all of her healing abilities. Also she is very, very weak in terms of HP and defence until you really level her up, so any AOE attacks will usually result in game over if she's your healer.
Party setups such as Riki, Dunban and Shulk are much more effective as Dunban draws aggro but is rarely hit so healing isn't often required. Riki can handicap opponents massively (as well as dealing stupid amounts of degen damage) and has a really powerful healing spell with quite a quick recharge. Riki also has a silly amount of health (even more than Reyn) so shrugs off AOE attacks very well whilst Shulk can use the Monado evade ability on himself and Dunban will just dodge 99% of the time anyway (and if he doesn't, Shulk and Riki will be in tip-top condition to bring him back up to health)
Then of course right towards the end of the game you get a final character that is not only strong, but can regen their own health which again reduces a need for healing. That character also deals way more damage than Dunban so is also a worthwhile character to use.
In terms of the storyline battles, i never really struggled at all. I can't remember losing to any bosses or anything. Optional bosses are another story however, with some being way too difficult for me (the named enemies that are higher than level 100 in the end game are just insane). So if you're struggling with a storyline-boss it's down to tactics or lack of levelling.