What you've described does not suggest the difficulty is too high.
You're merely discontent with what you perceive to be a linear progression.
Well, it is and it isn't. If your idea of non-linear is to be able to explore at will, and not be impeded by higher level mobs, then yes I guess it is. If instead non-linear means you're able to do most quests and explore some areas at your own pace, in whatever order you want, then this is a very non-linear game.
The main story quest notwithstanding, you're free to quest and explore with in reason as you please.
As far as the guards suggesting you're low level ... you can ask them to open the gates and you're free to roam.
As far as early leveling, you're at about the right level now to exit town (NW) and start fighting mobs to and finding more quests to level. However, the bulk of your experience does come from the town and it's related quests.
Again, you haven't made a case for the game's difficulty being out of place, merely that you're frustrated with your experience thus far. Which I suspect stems from a rather steep learning curve in some respects.
