If you consider the Difficulty Level option more important than those included under Email Preferences, it would be logical to place them above Email Preferences, under a header with the same format.
As for which mode of interaction to use, toggle-able boxes would be ideal. The three options should be displayed alongside one another, each in their own box. The currently selected option would be highlighted. This is a more user-friendly, intuitive, and graphics-based alternative to radio buttons. i.e.
If you only have drop downs, check boxes, and radio buttons at your disposal, radio buttons would be best suited for your particular problem. Check boxes are commonly used for options where more than one may be selected, and the use of radio buttons in your case will also help to visually differentiate between the check boxes in the Email Preferences section.