Torchlight 2 Passive Spells

While T2 is definitely a direct sequel of T1, you have to realize, these are both games that focus on "kill everything that moves" and "loot everything you see". The storyline is only there to help players become familiar with areas and the enemies that arise from them, but isn't necessary play T1 over T2.

Honestly though, T2 is a completely reworked version of T1 that features a whole slew of new improvements, as well as dedicated modding support, etc.

Consider this, it's very much like the L4D series. While L4D had a storyline, and so did L4D2, the story lines were only vaguely connected, but the game was more about a zombie co-op game. This isn't to say the storyline was non-existent, but it's there to guide players to understand what's happening around them. Gameplay-wise, much like TL2, L4D2 is a very very nice upgrade to L4D, in that there are more weapons, more game modes, more special infected, and other nice sweets.

Basically, consider T2 over T1 as a nice upgrade, with more features than its predecessor. If you really really care about storyline, by all means, it doesn't hurt to play T1. If you really like gameplay, then I'd say it really doesn't matter.

There are 4 difficulties: Casual, Normal, Veteran, and Elite, and in addition a hardcore mode. Can be seen on this video at around 2:50.

As the official site states:

Since there are no real benefits for picking hard difficulties other than fun (you don’t get better loot), you are free to play the game how you most enjoy. If you like being overpowered… you can play normal mode. If you like a serious challenge, play elite (which is much harder than very hard in TL 1). If even Elite is not enough for you, you will be able to easily download a difficulty mod and challenge yourself further.

The loot and drop rates don't change, only monster health and damage change.

And there is always the option to create your own difficulties with mods, to suite your specific desires.