Iron man is not a difficulty perse, though you can get into a state where you can no longer win much sooner since you only have one save that's automatically written over.
Difficulty level wise it depends on what your goal is, I think. Do you want to finish the game? Do you want a challenge? Classic is going to be very unforgiving. If you have no problems with starting over several times I say go ahead.
If you hate losing and just want to finish the game then go with normal. Personally I'm going with classic difficulty and ironman mode because I don't care if I finish the game or not. Plus from what I read about Classic it's where the proper game begins. You don't get any hand-outs when you start the game (like certain base facilities etc.) and the aliens don't go easy on you.
The reason why I don't go for impossible right away is because
I don't like to play against a AI opponent that feels like it's obviously cheating/gets a giant bonus to things.
Have you read
this yet?