im new and im also on this mission, but things look good in my game.
what i did was expand near my baseplanets and then build troopships asap to reclaim any world the dreadlords take over, i hid them on the edges of the map and behind planets.
Its essential that the Dl cant build up more planets, 4 is too much allready.
Also, research the soldier techs so you can make your planets withstand Dl invasions and trade them to everyone.
After that i focused in weaponresearch first before the strange dimishing retuns thing kicks in and makes it much harder to obtain the last tiers.
For the first fleets i recommend using tiny shiphulls. to beat a frigate you then just need to have more ships than it has guns (8), because HPs are low and they dont use defence.
The other hostiles didnt do anything until someone colonized the planets next to them, which kind of activated them in my game. But my teammembers, being unaffected by the DL yet, handled them alone.
After a while someone will buld a starbase and the cheating AI will instantly see it and all Dl ships except a few defenders will try to get it. by that time you need to go in with tiny ships fleets and clean 1-2 homeplanets of them and then get in troopers to take planets and erase everything on them, if you can you should use massrivers to reduce the tiles, otherwise flooding the planet works best to get the best odds.
This will stop their spam of ships and give you some time to breathe, which you will need because the ships moving to the starbase will run amok for some time.
after that you can decide to just take all their planets when they are gone or you can choose to research for a while and then build superior ships.
Oh and the espionage must have been changed because i never gained any tech.
And the all seeing eye thingy helps a great deal in this scenario to spot DL Troopships or attack ships that try to kill yours.
BTW, is the Ai always this dumb or is it just the scenario? The dreadlords are really borderline braindead with their shipmovement and my allies have literally hundreds of ships just sitting at their planets while the dreadlords give me a hard time holding the front. One of my allies has a massive fleet with some huge hulls and the first strike ability(i think) and could wipe out the DL in simple ship to ship combat, but it just doesnt do anything.
i even gave it planets near the DL so it would feel more treatened by them.
Edit: Sorry about the formating, this forum handles it a bit strange, i either have to write a wall or have those gaps everywhere.