Hmm, no, if you want challenge, go for GWX! LSH3 is better for early war, in my opinion. Realistically, you could sail into the middle of a convoy on a dark night in '40 or '41 and sink all the ships you wanted, on the surface. And then make a quick getaway, also on the surface.
That tactic is suicide in GWX, but possible in LSH3.
I have not yet played late war with it (got SH4 recently, playing the U-boats there), but I have a feeling that punishing GWX AI is matching the reality quite close...
...That being said, after reading the Iron Coffins, U-Boat War Patrol, and Ace of Aces, which go into detail of early war, and Steel Boat, Iron Hearts, which deals with punishing planes and escorts in later war, '44 particularly.