I had plenty of potions from loot or alchemy. Healing was slow at the very beginning of the game, but like Gwenio said, boosting strength helps with that, and there are Regeneration and Life Leech skills (the latter useful for melee characters). At level 15 level 1 of the healing spell becomes available, which can cut down on your potion requirements, as could the Potion Efficiency skill. At about level 12 you have access to an enchanter and have probably bought a couple malachite gems you could use for healing auras on jewelry.
I upgraded my armour multiple times before getting the battle tower.
Most people that had trouble with the first dragon battle did much better with a bit of advice on strategy (learning Dragon Spirit, etc). Leveling in the fjords first could make that battle much, much easier.
The villain needed you alive for a reason.
Patriarch refused to open a portal into the Hall of Echoes for him; the only way he could get there was to follow you, and try to reach Ygerna before you.
There is a patch in the works to convert D2:ED into the equivalent of DKS (minus the FoV section), which, among other things, makes the game much easier.
Welcome to the forum.
