Boy, do I know your'e frustration. Don't worry about it though. Do as the other guys advised and attack and run. Also, When you level again, choose the summon ghost ability; that helped me ALOT when I first started. The ghost will heal you up some during a battle. The next spell I would advise you to get would be charm. It will turn one of the attackers to your side and he will fight for YOU for a short period and that may be just the time you need to throw back a heal potion.
Talk to everyone to recive more quests and keep refering to this site; it has helped me get through quite a few areas where I was stuck. [ I am currently having problems with hall of echoes ] This game is not like Fable2 at all. Some of the quests [ actually most ] you cannot complete real quick and it requires you to go to different parts of the world before you can complete it.
ADVICE: Since you are still at the village; kill all the small goblins and skeletons that you can but stay away from the center of the goblin village. There is a glowing ball with a mask on it. Dont take him on until you are a higher level. Go around the edges and use a bow to draw them to you. Dont try to tke them all on. The trick is to get them to break away from the others and make them come to you. I'm level 17 and I still do that.
This game is difficult; but the satisfaction that you get when you finish a quest is unmatched in any other game i have played!!!!!! I hope that helps.