Can be on any difficulty, just finish level 3. Can be done either co-op or single player.
Overall this game is not to hard at all, make sure and collect power-ups and health when they appear. Guided missiles and lasers are usually your best bet, but the shield power can be helpful in tense situations. The other power-up (magnetic field thing) isn't all the great and should be avoided if any of the other power-ups are available.
As far as bosses go they have a basic set pattern and are very simple to predict once you see them cycle through a few times.
Take it slow, play defensive with an offensive attitude and you will reach Level 3 no problem.