I have an alternate suggestion for enemy health: maybe final fight style. Whenever you hit an enemy, his health bar (and possibly name) pops up in the top left of the screen, then disappears after a few seconds.
As for player health, give it a permanent place on the screen somewhere, top right corner for example. Give it the same color as your character.
Or another neat idea would be to have an icon of your character that gradually changes as he receives more damage. Think about Terminator 2 (beat em up version) or Ski Or Die - snowball battles. You could make the character slump over while receiving more and more bloody marks on his clothes, until he is laying in a pool of blood or something.
As for harder enemies, that's AI related, which is never easy. They are probably terminators now (hunt & destroy), but that makes them way to predictable. What you want is unpredictability, which means throwing in random behavior patterns based on what the player is doing at that time. I have little experience with action script, so I have no advice whatsoever to give you