I beat this on my first go; it was a bit challenging, I did loose a few guilds, and quite a bit of heroes after like day 7 or 8 and until day 45 or something...that was the most difficult period for me.
I used defense flags perhaps about 3-4 times, on a few outer buildings, and sometimes they got lost before the heroes could rally. Once I was in the day 40s, defense flags were efficient to just rape the enemy, but by then the game was well in hand, so I can't say all the talk about defense flags being vital are that true.
I spammed guilds at the start for my first stage, just getting a mass of cheap heroes early on, leveling up, slowly killing lairs...then by like day 20 I was "Teching up" if you will, researching skills/armor, though I didn't get until tier 3 until like day 50 or so...I never got a magic bazaar until like one of the late 60s days, and by then it was because I was bored.
The key really was I played the game on 0.5 speed for most of the time, and utilized the artifacts very wisely.
Hopefully this helps; I don't see why this should be impossible for you to beat. I was expecting the waves to get harder, but actually once you got to a certain point, it evened out.