I had heard somewhere that if you start an online co-op campaign the game turns off the AI teammates, eliminating one of the main gripes about the game. But I haven't been able to find any info backing this claim. Is it true?

Yes, it works (I've just tried it), but you won't get the cutscenes this way. And I think that the best - some may argue: the only remotely acceptable - part of Daikatana is the story.

If you have trouble with the sidekicks, you can order them to stay behind and return to pick them up after you cleared out the level. It still becomes a chore, but better than missing the story altogether.

But if you really only interested in the gameplay, yeah, the coop method solves the sidekick problem.

There's another oddball trick I discovered if you want to play the game with the story without worrying about the AI getting killed: turn on God mode after alternating level transitions. There's a weird bug I encountered while messing around with the various cheats in the game where I would turn on God mode for all three characters at the end of a level, transition to the next, and turn it on again, but it would only engage for the main character. Entering the God mode command again would turn it off on the main character but turn it on for both of the AI partners.

With this, you can give the AI partners God mode while still taking damage and presenting yourself with a challenge. But this method seems to only work on alternating levels, as transitioning to the next would then turn God mode on for all three folks again(sometimes. Sometimes it stays alternating). So what you can do is save before each transition and exit, restart and reload, turn on God mode, make the transition, and then turn it on and off again to give it to the AI.

It's a bit time consuming and messy(and flat out weird), but it's something you can do.