Proud Mode on BBS can be hard unless you over-level yourself. I don't really find KH1 very "challenging" to be honest while when I played BBS, I did die a few times (a couple of them were against normal Unversed 0_0). Not sure how to compare it... but I'll say it's definitely harder than KH2.
That is music to my ears! I haven't played any of the FM's(I'm just not tech savvy enough to chip my PS2) So my hardest KH experience is KH 1 on proud mode, and by extention my hardest boss is KH 1 Sephiroth.
Its great to hear that this game actually has a challenge.