I don't think the developers intended the game to be played primarily through combat or that combat should ever be easy. That said, they did leave it open for players who like the combat aspect to be able to make use of it and I suppose they did intend for you to be able to develop some level of skill at it. It's not entirely out of the question, but that's also why that created the difficulty levels. If you want to play in a more stealthy and less combat oriented fashion, then you can play the Expert difficulty. I like that it gives you a bit of choice. I for one have never played anything other than Expert but I don't begrudge anyone who would want to get good at using the sword for combat.
As for the arrows, I think I've played so many times that I've gotten really good at using water arrows and putting out torches. I can fairly consistently hit a torch that's quite a distance away. I'm not really sure if regular arrows have the same trajectory though. And obviously fire and gas arrows are easy since they travel in a straight line for some odd reason.