I'm sorry. I did so much drinking for Labor Day, completely clearing out the Knowledge Path, that I had to show up for work dehydrated and angry. I returned home after 8 hours, just watching Youtube videos.
The Chaos Path! I explored maybe half of it, and I noticed a huge difference in the enemies spawning. I saw Djinni of all kinds, as well as hellspawn, supposedly all vulnerable to the Divine realm, with one caveat: They're spawning at the same level as me! I'm facing level-scaled Djinni, in the mid 30s, just like my party, not so vulnerable to the realm that they are supposed to be most vulnerable against. It's almost as if the map is split, to spawn different enemies in different zones (I wound up with spirits and unicorns during the Knowledge Path).
These battles wound up an an ugly slugfest, with my party resorting to Lightning Bolts and Medusa Stones frequently (status effects on ammo seem to work much better than magic at similar levels).

To your earlier point, you *can* train the Air realm with Set/Return to Portal, though I don't know if there is a timer involved. You may be able to reload your game, and still train? I consider such things cheap, but do with it as you will.

Anyways, just as with Amit and Pee Wee, you want to isolate your boss enemies (fortunately, with these two, they're right after you unlock the gate to the Knowledge Path, and the game is unlikely to register that you entered a new zone for a little while). Also, Amit is pathetic; It's Pee Wee that you need to worry about (he was very resistant to magic, forcing me to cripple him with ammo).
I noticed that one red dot never moved in the Chaos Path, and I made sure to carefully engage the Souleater alone, so that it had no help.
Unfortunately, my Bard's and Mage's attempts to freeze it weren't even rolled against the monster's resistances; Luckily, a bunch of ammo flying at it paralyzed/KOed it, and it was killed easily after that.
At this point, I called the Chaos run halfway, with the Souleater dead, and I set a portal, and portaled back to Ferro to sell off junk, and buy a ton of Lightning Bolts and Medusa Stones. I will learn to embrace blue encumbrance, with the party inventory filled with ammo, 2 extra Mana Stones, The Astral Dominae, and the Chaos Moliri.

Here's the good part: During the Knowledge Path, I managed to get another Brilliant Helm. So, the Priest, Alchemist, and Psionic got 3X Brilliant Helms, and the Mage has the Canezou Helm (better +AC, and +10 to Vitality). All 4 casters have 100 resist all, regardless of equipment (except the Cloak of Many Colors), so resistances are moot.
The only 2 that might benefit from the Helm of Serenity now are the Bard and Gadgeteer, but their headgear AC would suffer, since they're both wearing Bascinets (AC+6). Everybody in the party has 100 Divine resistance, before even Magic Screen, proving that Divine resistance in this game is too easy to get. It's just Mental resistance on the Bard and Gadgeteer, and that could be easily made up for with a quick Soul Shield spell cast in Round 1.
My Alchemist, Psionic, and Mage all have Staves of Doom, so good luck convincing me that daggers are better.

Did you try Banish? I believe at least some of the enemies you mention (Djinni, in particular) count as demons, and Banish is as powerful as Tsunami and Prismic Chaos, only it hits all susceptible enemies in range (unlike Tsunami), always tries to do damage (unlike Prismic Chaos), and is usable by both Mages and Priests (unlike either spell). (Also, if you're using an imported party, Bards can use the Cornu of Demonspawn from Wizardry 7 to cast that spell.)

For a Bard, I'd ideally want Puck's Cap for the Music boost. At level 24+ and max Music skill, this should prevent the Bard from ever playing a wrong note again. In particular, I'd consider it far better than the Bascinet; head AC isn't work giving up that skill bonus.

(If you somehow still don't have it, go back and farm those renegade Higardi that appear in such locations such as Arnika.)

Staff of Doom:
* Can't be used with a shield
* Can't be used with an offhand weapon
* Needs some HP regen to counteract its drawback (or else you'll need to constantly keep healing the character, making resting annoying)
* Is cursed; therefore, you can't easily switch to something else

My actual plan for my upcoming party is something like this:
* Mage: Not present. The mage-like Bishop that would take her place would use whips.
* Alchemist: I would go with the Staff of Doom, but before getting that would have her use a sling to train her Throwing & Sling skill for bomb use
* Psionic: A sling, to try to train Throwing & Sling, so that she can throw Ice Bombs against enemies that Mental and Fire don't work well against. Once I get it, the Mindblast Rod, in order to get a nuke far ealier than normal. though I wouldn't be having her actually attack with it..

More thoughts for the new playthrough I'm planning:

First of all, one more mod I'm going to try to make: I'm going to make the Instant Death spellbook also usable by Monks and Psionics. The inability of these classes to learn this spell from a spellbook feels like an oversight, since these classes can use the spell and Divinity spellcasters can learn it. (Worth noting that a Bishop with enough Psionics but not enough Divinity can learn the spell from the spellbook.)

Now, to summarize my next party idea:
* Bishop 1: Elf Int/Spd Bishop, focusing on Wizardry at first (maybe even up to Dehydrate), but still looking at the other spellbooks (eventually 4-school). Whip and shield. (Might stick with Bullwhip if the other whips end up being used as alternate weapons.)
* Bishop 2: Human Str/Int Bishop. Not sure about spellbooks, but will go in the front line with a mace and shield.
* Priest: Elf or Gnome Str/Int Priest. Gets Power Cast early-ish, but still goes in the front line. Elf gets more Dex/Spd (so sooner 2nd attack), but Gnome gets Power Cast a level sooner (at 12).
* Alchemist: Dracon Str/Int. Will invest in Throwing & Sling in order to throw bombs, and later will use the Staff of Doom (with Throwing & Sling exclusively used for bombs at this point).
* Psionic: Mook Int/Sen. Will invest in Communication. Slings as main weapon, allowing for bomb use for when Psionics aren't the best magic option. Also will use Artifacts (which will start at 0 but rise quickly), including that Mindblast Rod.
* Valkyrie: Dracon Str/Int. Will not get the second attack as early as the other one (because Dex is not boosted at level up until Str maxes (IIRC at level 13)), but will get better Artifacts skill growth, and will have Power Cast late game. Also, breath early on.

Chaos Temple! I made it easily to the temple to deposit the Chaos Moliri, as it seems that enemies don't spawn much north of the Souleater. Along the way, I had a battle with a named slime (Quagmoth Ve, or something, who cares). It fell easily. I had a set battle near the Chaos Temple, 3 Djinni of the Clouds, and a Greater Hellspawn, thankfully, all four killed in round 1 (I don't want Death Clouds or Toxic Clouds fired against me).
I deposited the Chaos Moliri in a separate chamber, as I did with the Destinae Dominus, so now two artifacts out of three are out of my party's inventory, freeing up space, and lowering the whole party's encumbrance.
That was fine and dandy, as I explored the "middle path" first, ignoring the map's edges. After a quick portal in and out, to sell junk, buy more good ammo, and rest, I went along one of the Chaos Path's edges, and got to an area south of the Souleater, where many enemies tend to spawn.
I had a ridiculous amount of battles, getting a ton of experience, and using up a lot of ammo and Mana Stones. I'm tired, near a level up, and had to call the Chaos Path at 90%.
I will finish up the last of the area tomorrow, and hopefully gain a level (I think I'm 2 or 3 million XP from levelling up, a drop in the bucket at higher levels).

Banish tends not to work so well against enemies at similar levels to you, ammo works better (melee too, if they are foolish enough to swarm a Bard/Gadgeteer with *Light Swords*). Banish works great against lower level enemies, since magic seems to be heavily dependent on relative caster levels.
If you think about it, a specialist caster with 125 skill to their spellbook, and 100 realm skill, still can't cast most level 7 spells at power level 7 with 100% success, what makes you think that a Bard (with +10 Music skill, and -10 Piety from the Puck's Cap), or Gadgeteer can do the same?
I had to rage-quit one time (note that this is very rare, thankfully). My Gadgeteer, at level 37, with 100 Engineering skill, attempted to stamina-cast Asphyxiation, but it backfired, killing one of my party members! WTF! Why is RNG so random like that? As far as I know, the casters would have only suffered a fizzle at most. Totally unfair, I reloaded.
I agree with all of your fixes, at these seem fair.
Your party sounds reasonable, but one (or both) of your Bishops should put a primary focus on the Wizardry/Mage spellbook. Also, your Valkyrie will really have her work cut out for her, as the only non-caster to hold the line against enemy melee attacks.

To reliably cast a spell of difficulty 16+ (difficulty is base SP cost / 2 + spell level) at power level 7 reliably, you need an effective skill of 110, which a bard can get. For spells cast from the spellbook using SP, the game takes a weighted average of the spellbook and realm skills, with the realm skill being 4x as important. Hence, the specialist caster you mention only has an effective skill of 105, which is not quite enough. Hence, a Bard can do this, but not a Gadgeteer, nor can a specialist without a realm skill boosting item.

Piety has no relevance here.

I'd argue it's fair, as you should have someone, preferably more than one character, who can cast Resurrect at this point. And unless you have at least 2 characters with the spell (or Amulets of Life), you should be distributing the Resurrection Powders that the game gives you between multiple characters. Definitely no need to reload if this backfire is the only thing that went wrong.

Part of the strategy in Wizardry 8 is being able to manage risk and handle cases where things go wrong. (This is in contrast to, say, Crystal Project where you can, with the right strategy, control the battle to the point where the boss isn't going to be able to successfully pull off anything particularly horrible. It's a different playstyle, and I appreciate it, but for my CRPG I'm going to aim for something like Wizardry 8's approach.)

I'll probably do that with the elf bishop, at least earlier in the game. Pick up Energy Blast at the start (no need to learn Mind Stab since I can learn it from a book thanks to my mod), then Missile Shield and either Enchanted Blade or Magic Missiles at level 3, and going heavy into Wizardry until I learn X-Ray. (Past that, the only Wizardry spell I really care about is Dehydrate.) Alchemy can grow by making potions (though it will need 15 to start), and I'll want to invest in Divinity and Psionics eventually as well. (Having 2 or 3 characters able to cast Mind Flay for the Rapax army fight would be helpful, since that spell ignores Element Shield.)

I'll probably avoid the Rattkin Tree until after I've gone through the Rapax Rift and am at a decent level. This way, I can reload the Serenity chest, which is conveniently located early in this area, until I get a Helm of Insight (unless I already have one, of course); this saves 10 points of Psionics training for purposes of learning higher level spells.

The Valkyrie only has 50% more HP than a Priest with the same Vitality, and those extra HP are often not necessary. When they are, there's always Guardian Angel. The Bishop only has 80% of the Priest's HP, plus (unless a Dwarf) will generally have lower Vitality, so I'm a little worried. I remember reading in some D&D book that low HP hurts a character more than high HP helps, and that holds true here. (I'm thinking that maybe the Bishop shouldn't have had higher HP than a Mage, and maybe shouldn't have had full Priest equipment options. Also, as I said before, I think that Priests (but definitely not Bishops) should have had expert attack rating growth. I don't want to try changing these, however, particularly since that last point would require CF injector if it's even possible.

I did the Book of Death fix, and I also modified the description to reflect the change. (I could have gotten away without modifying the description, but that description wouldn't be accurate without the change.)

By the way, a couple thoughts:
* Psionics are underrated. People seem to complain about enemies having high mental resistance, but this isn't broadly the case. (Gregor is the most notable enemy to have high mental resist compared to other resists.)
* Axes are good for early game stand-in Fighters. If you're going to use a Fighter just for the early game (for example, to replace with a Gadgeteer later), there's some decent axes, including the Bipennis, 7-21 damage and buyable in Arnika. Also, I'm pretty sure the strongest weapon you find in the Monastery, not counting the demon-slaying weapons you can't get without backtracking there later, is an axe. These should last until you're ready to replace the Fighter.
* The other classes suitable for temporary use are Mage and Priest. A Mage could use as spd/sen build, ignoring Power Cast (it's not going to be that good anyway if you replace around level 8), while a Priest could do either that or a Str/Dex build.

The Priest stand-in is an interesting strategy that could work.
* Start of game, one Priest and one Bard. No Gadgeteer (yet) or Bishop.
* Skip Trynton (you don't want the Intelligence boost until you have your final party). In Marten's Bluff, pick up the Mandolin of the Magus. The Priest is no longer needed for Magic Screen. (Don't do Z'Ant quests until after the character replace.)
* LMB might be the time to do the character replace, right when you're about to hand in that Umpani Flag. The Gadgeteer replaces the Priest, and you're now without Armorplate.
* Make your way back to Trynton, use the Trynton fountain. (May want to buy gadget components from Crock.) You're missing Armorplate, but you have Magic Screen and Guardian Angel.
* Go through Trynton Upper Branches. Toward the end, you can finish the Armorplate gadget.

(This could also be done with a party containing a Valkyrie, doing the replace at level 9 or so, when the Valkyrie can start covering those spells.)

Success! The Ascension Peak entrance (up to the fountain), Knowledge Path, and Chaos Path have been fully explored, and I now have a level up because of that. The Bard and Gadgeteer are now level 38, and the casters (Priest, Alchemist, Psionic, and Mage), are now level 37.
Both the Knowledge Temple, and Chaos Temple have been visited, and the Destinae Dominus, and Chaos Moliri have been deposited into their respective slots.
This means that the Ascension peak map is either 2/3, or 3/4, explored (note that the Life Path forks in two, for the entrance to the Cosmic Circle, and the big, ugly Rapax battle to get to the Life Temple). Let's call it 70% explored.

The big worry that I have is that if I fight the Rapax battle, my Rapax faction rating will go back to hostile, and Ferro will be in danger if I want to trade with him again. I had better set a portal far away from him, and again vaporize the Rapax far away from him (I may even clear out the Rapax Castle Cellar, and Rapax Castle Upper Level, just to see who is still loyal to the party).

For your party, I would recommend that you diversify your skills, as you already said. You want some of: Melee, Ranged, and Magic combat, as I have done.

My current (old?) party doesn't have any ranged characters; it's just melee and magic. It's nice not having to worry about ammo.

My next party has a couple characters who I plan on using slings, my Alchemist (pre-Staff of Doom) and my Psionic.

Looks like the Mook Psionic will get two (2) expert skills at level 9. Maybe Str/Dex after that point? (I like getting Strength high on most characters because it boosts carrying capacity, not to mention boosting damage (something that you really can't boost by other means) for most weapons, yet still provides some accuracy. It's probably the most powerful stat in this game.

(On the other hand, Power Cast might be the mots powerful expert skill, but it requires maxing out what might be the least useful stat, particularly once you've maxed (or nearly maxed) your important skills.)

Being worried about the next battle with a lot of Rapax (and losing my faction rating), I made sure to really load up on Lightning Bolts, and Medusa Stones, with Ferro, to the point that I suffered green encumbrance. I want to be totally done with the Rapax Castle.
At this point, I portaled out, to Arnika, having deposited most of my ammo in the Arnika Bank chest, and set a portal there. This is where I want to be, away from hostile Rapax.

I agree with you. Intelligence seems to be a weak stat overall, the only thing that it does is being a controlling attribute for a lot of skills, while giving a weak 2-for-1 Mental Realm resistance above 80 (20 points in Intelligence above 80 gives 10 Mental Realm resistance).

Strength is important, which is why I prioritized it on my Bard and Gadgeteer. The four casters are also working on it, as it boosts chance to hit, damage (both melee and ranged), Stamina, and Carry Capacity (and grants Powerstrike at max).

Here it is, the big battle that I have been waiting for, against the Rapax on Ascension Peak:
As it turns out, none of them are above level 18. The Rapax Prince, my illegitimate daughter with Al-Sedexus, nor any of the other Rapax, were any threat to the party whatsoever. After that, it was a never-ending grind to kill every enemy in sight (which is a losing battle). I did set a portal at a dead-end, so I can get to the Life Temple tomorrow.
Talk about encumbrance. I was in green the whole time fighting enemies non-stop (and getting incredible experience, not that I need that at this point in the game).

My "current" playthrough, I've managed to stay in the white most of the time. Not needing ammunition helps, as does focusing on strength with (IIRC) 5 of my characters.

My next party will have a bit more trouble with this, for a few reasons:
* I'm currently planning on using 2 sling users, at least at the start. (Alchemist and Psionic) Hence, I need to ave enough ammunition for them.
* In addition to one of the bishops, the psionic isn't going to have an initial strength focus, though once she gets Power Cast and Eagle Eye, I'm going to start boosting Strength (and Dexterity) with her.
* On the other hand, there's no reason to carry around any instruments or gadgets, so that's some weight saved.

The developers designed this fight with the assumption that the party would be at a reasonable level, which at this point would likely be in the low 20s. Hence, when you go into it in the mid/upper 30s, of course the battle is going to be too easy.

Of course, you're still going to be higher in level even at the low 20s. I think the developers made the enemies lower level simply because there are so many of them in this one fight.

Interestingly, this may be one battle where the Psionic class can truly shine. At the levels I'd expect, your Psionic would likely have access to Mind Flay, which is particularly good in this fight. Consider the followind:
* Nuclear Blast is resisted more by Rapax due to their natural fire resistance, plus Element Shield also blocks it. (Although, at your level I wouldn't be surprised if it did decent damage anyway.) Prismic Chaos has similar issues.
* Earthquake isn't resisted as much, but it is still blocked by Element Shield. This is probably what I'd have a 4-book bishop use if the enemies haven't put up Element Shield (though note that, of course, it does poorly against Earth Elementals, if any are summoned).
* Falling Stars is like Earthquake, but weaker, and therefore is not considered for a bishop. (It is worth having a priest cast, particularly if that priest knows Power Cast.)
* Tsunami is cone targeted, which is not good enough given how spread out the enemies are. The same can be said of other non-nuke attack spells.
* Banish is special-purpose, and in this fight will only work against Al-[character's name] and any summoned elementals.
* That leaves Mind Flay, which is in the mental realm, and therefore is not affected by Element Shield. So, if enemies cast Element Shield, then Mind Flay will just cut through it like it doesn't exist.

I made it to the Life Temple, the last of the 3, and deposited the Astral Dominae into its receptacle. With this, the way to the Cosmic Circle is now open (I also disarmed the bomb, so I don't get the BOFFO ending, where the Savant vaporizes the planet).
I now have 3 choices to make: Join the Dark Savant, Write him out of existence, or tear out the page (destroying the universe, forcing me to rebuild it). Perhaps I will do all 3, the first choice being the easiest (killing Bela is easier than killing the Dark Savant, reminding us all that it's easier to be evil than to be good.
Also, joining the Dark Savant is the only ending with a video. Perhaps, the developers also sympathized with Evil Phoonzang, as the Dark Savant is not just "a bad guy to be destroyed", rather, he has an interesting backstory, and a legitimate reason to be angry.
These were the set battles that I had on Ascension Peak (with credit to YouTubers, who documented their fights):
Knowledge Path: Amit and Pee Wee (optional, though my party killed them, because cowardice is sad), an Enlightened Spirit and two Adamant Unicorns at the Knowledge Temple.
Chaos Path: Souleater, Quagmroth Ve, 3 Djinni of the Clouds and a Greater Demon at the Chaos Temple.
Life Path: Big, low-level Rapax battle (17 Rapax total, featuring the Rapax Prince and your illegitimate daughter), Quagmroth Teg, Furor, and an Oak Guardian and 3 Cliff Sprites at the Life Temple.
I overcame all of these set battles; I don't think that there are any more set encounters, just get to the entrance to the Cosmic Circle, fighting countless random spawns (these are way more dangerous than any set enemies).

To your point:
You have no Bard or Gadgeteer to worry about, so quickly sell any instruments or gadgets that you come across. You have a party of (mostly) casters, except for the Valkyrie, so she will be carrying the party, in terms of melee defense, and carry capacity.
What do you mean by "reasonable level"? The Mountain Wilderness monsters spawn in the level 30s, you (may) have to deal with Pee-Wee, the Souleater, and mid level 30 set enemies on Ascension Peak. My Bard and Gadgeteer are level 38, and the casters are level 37, ready to take on all challenges.
Who goes to Ascension Peak at level 18? That's way too early, and probably assuming that you skipped most of the game.
Even in the low 20s, you still outrank the Rapax in level, and I'm again assuming that you did a minimalist run.

Against the 17 initial enemies in the Rapax final battle (increased if Al-Child gets a chance to spawn reinforcements, which she never did):
16 of them were killed in Round 1 of combat, including the Rapax Prince and Al-Child, with instant death magic. There was only one survivor, and that was because he was out of range (the Alchemist's Quicksand made work of most of those annoying out-of-range Rapax). Moving closer to him, he was killed quickly in Round 3, with Instant Death spells.