The game doesn't get easier the more you fail. The AI remains the same.
The difference is that when you fail over and over, you either get a full health bar after each fight, or you get buffs on top of the AI opponents. I don't know which one, as my Challenge Tower is still pre-nerf, as I haven't lost enough.
For the Challenge Tower, it seems to, actually. I've gone through the entire Tower, no skipping, four times now (once on Xbox 360, twice on PlayStation Vita, and just recently on PC), and after several losses the AI stops reacting as fast, and doesn't combo as hard.
This is really noticeable with Mileena in Challenge 300, as at first, she robotically counters a lot, but after several losses, she starts letting you hit her more
.
For Challenge 300, after loosing several times, you start getting some health back after each opponent, not full health, and no buffs.