That can't be right. I fondly remember playing it on impossible, and almost all of the aliens started with heavy plasmas, and aside from that even the smaller ufos had twice the number of regular units.
Wikipedia claims that the difficulty didn't reset until after the first Battlescape mission, which might explain things.
Aha! http://www.ufopaedia.org/index.php?title=Known_Bugs#Difficul...
It was only on the DOS version, the windows version did not have the bug; perhaps you played the windows version?