I can change my difficulty, I currently use nothing - haven't noticed a problem before... This is per miner, right? So if the hash rate is 1350 Gh/s, I enter a difficulty of 1890? ..and for rented hashes?
If you do everything under one account name, set the difficulty to the sum of all the miners hash on that account. For rented power set it to the Gh/s times 1.4 that you are renting. It only has to be approximate. It reduces the number of solutions per second you send so helps with bandwidth for the pool and yourself, and the load.
If you are getting an increase in rejects, you've probably set too low. If you're not seeing your hash rate stats update it's probably too high.
The real solution is for me to implement variable difficulty automatically adjusted from the pool end which I'll do in the next update I think.