I never actually did anything in 2 player mode, but iirc it is not possible to do the time attack mode with 2 players or solo-Diddy. If i'm correct, the peanut gun cannot be an option.

The IL world record does a quite good strategy for the fight. Yes, it is difficult, but that's what the shiny golden medals are supposed to be. The game developers had some really crazy strats in their minds ehrn they set the shiny golden times (not on all levels, but e.g. 5-3 also guves a good example). So i could imagine that a strat similar to what we see in the wr is the intended way to go.