Is the ruler designer incompatible with setting the difficulty level?

It'd depend on what you mean by "Do not appear to be applied". Modifiers based on difficulty do not show via any traits or the like. In that case, most people wouldn't be able to see their TRUE stats of character, such as fertility. If you're NOT playing Ironman, however, using debug[I believe it's debug, but there might be an addition.] in the console will allow you to see hidden stats on EVERY character, with all modifiers applied. If you used the second option, then I'm not exactly sure. To be honest, I don't mess with the difficulty settings a lot. From what I know in Paradox games, it's possible the difficulty setting for CK2 only effects the AI's behavior.

In my many hours of experience with Paradox games, the difficulty is usually either bonuses for the AI or increased aggression against the player.

In hearts of Iron 2 you had the aggression setting which made the AI more or less likely to attack you, and the actual difficulty setting which gave you or the AI buffs/debuffs.

For CK2, if its the little meter with the skull and pacifier, as far as I can tell that is just subjective. Any other actual difficulty setting is either more aggression/base relationship debuffs(pretty much the same thing), or debuffs for you and buffs for the AI.