Yes, it’s probably the most difficult mission so far.
All depends, I suppose; I've only killed everyone in it once or twice, but clearing the Gwenhyvar itself out can be done fairly reliably with some practice. Doesn't require too much in the way of fancy tactics, if you only want to polish off the Gwenhyvar itself. Hit full afterburners and leave them on while weaving all over the place- when an enemy enters your view, launch a missile and pop off a few shots. Take out the rapiers first, as they're easier to crack. Don't spend any more than a few seconds on your first few attack runs, as there's too many bogies to deal with.
With a little bit of luck, you'll be able to pick them off one by one with this method, assuming you don't collide with anyone or take one missile shot too many- there's a lot to keep track of. I actually prefer to stay away from the Gwenhyvar, since WC1's engine doesn't make it easy to perform a close fly-by of a capship without smacking into its collision box.
Once you have that down, killing everyone in the mission is a matter of using afterburners when you're breaking a missile lock, or when someone gets onto your tail- in other words, pulsing it every few seconds and taking a different flight path. Otherwise, you'll run out of fuel.
I still hate Kurasawa 2 more, simply because I can keep myself alive far more easily than I can protect something else. Wasn't it Hubble's Star on the losing track that had a similar situation, but with Draymans in the line? I didn't even bother with that one... just hated getting kicked off the winning track of WC1 for so long.