Dive training is reputed to be more difficult than flight, partly because physically you have to do everything on land and in the water. If you are not a strong swimmer, you should start practicing now with a legitimate masters' swim club. Dive medicine is not glorified scuba, although you certainly will have plenty of great opportunities. There are only 20 selections for DMO and 75 for flight, so the combination of numbers and intensity is probably where the more competitive thing comes from. Dive medical officers learn more about hyperbarics and flight surgeons get aerospace physiology. One group has too much atmospheric pressure and the other not enough, and all of the medical focus follows along those lines. One of my residents got to be the medical officer at the Titanic site one year - one of the bennies of being a certified dive medical officer. After internship you will receive 6 months of intensive physical training, which is the rate limiting step in becoming a dive medical officer. Your typical tour after that will be with the submarine groups - you are not usually assigned to a submarine itself (too small), but to a group of submarines where you supervise the independent duty corpsmen for the most part. You can also be assigned to SEAL teams, underwater demolition folks, etc., but most of the heavy lifting is done by specially trained corpsmen and you do the supervising. Duty stations include San Diego, Pearl Harbor, panama city, New London, Coronado, etc. You cannot go from dive to flight without doing the flight training. The percentage of people who start flight and finish is better than that for dive. Again, look at the swimming and running standards before you apply. A lot of your peers at dive school will be studs (both male and female) and I think that competitive rugby playing as an extracurricular activity is overrepresented among dive medicine applicants.
Your minimal activity tour after 6 months of dive training is 24 months, so most people extend to 30 months to get back in academic cycle. It is also true that any GMO tour improves your chances of getting competitive residencies in the Navy, but your performance in those jobs also counts for something. So - if you whine and moan throughout your GMO tour, there will be other intagibles that factor into successfully competing for anything.
Finally, yes, a lot of people do their 3 year GMO tours, then extend one year and get out. On the other hand, people who do dive and flight usually have a pretty good time and interface with "real Navy" and therefore apply for residencies, stay in, etc.
I hope this addresses most of your concerns!