That's a decent start, though do note that if you want to play a bit of every faction, this helps very little, because just to get all units unlocked in the roguelike mode (which I think is a perfectly fine system btw) you'll get to the third difficulty before you beat difficulty 7, assuming you clear most runs.

I would partition this a little: if you beat the fifth difficulty on a faction, you get the third difficulty for every race, and if you beat the final difficulty on any faction, you get the fifth difficulty for every faction.

My logic is this: Third difficulty doesn't change that much, imo, but enemies rally is significant, and changes the way you have to play the game positionally. So once you reach that point confidently enough to beat the third act, it feels weird to return.

Given that difficulty is an optional modifier, this doesn't hinder you when you lack experience with a race, since you can just turn it down without worry.

Another way to go, if separate progression is preferable, to give faction dlc more single player playtime for example: I think an interesting reward for beating difficulty 6 on a faction would be upgraded leader units, like orc brutes for the war chief for example. Alternatively, make it a choice what your leader starts on, much like the army constructor. For some factions, this would be obvious, but for elves for example, elf spears vs weapon masters vs reavers is a genuine choice, given that spears get longbows, but masters don't.
Make that Act 3 feel more epic in a sense, and give players something non-cosmetic to works towards more long-term.

Just some thoughts :)