Handsize attacks are in now way merely a „reasonable counter“, they make the card basically unplayable. After Militia hit, you can keep your Village at the start of your turn, and perhaps your village draws into your Steamboat. If it does not, the turn is lost (1 card does very little).
I'm happy to just assume this is true. That doesn't really solve the problem. If a card is busted in 90% of cases but useless in 10%, this doesn't make the 90% any less problematic. You don't average the powerlevel, you still look at just the 90%.
And if we just assume no discard, you have a bonkers effect. The penalty of discarding 2 cards at the start of your turn seems significantly smaller than that of your opponent discarding a specific card now. In other words, even if you took away the buy, it would still be stronger than envoy, probably by quite a bit. Envoy is top tier $4s. Adding a buy to that is nuts.
You seriously underestimate the two huge liabilities of the card.
First, it is a Duration and in a deck-drawing engine it is only half as strong as its non-Duration counterpart.
This is a common fallacy. I thought that Mastermind is busted when I first saw it and it took me quite some games until I understood what I should have known since Seaside has been out, that it is often just a half-KC.
Second, that's we already went over above. Discarding at the start of your next turn hurts more than discarding at the current turn. It is trivial, you discard the worst 2 out of 5 (instead the worst 2 of out of 9 as it would be on the current turn).
For the sake of argument, let us invert the order of Embassy: "Discard 3 cards. If you did,
+5 Cards."
I don't know the strength of this. Is it a $3? Does it suck at any price? No idea, all I know is that I would never ever prefer this over Smithy.
Now the card could very well be too strong, who knows. But it seems pretty clear to me that without a Buy it is definitely worse than Smithy and with a Buy it is weaker than Barge.