I've gotten as far as you have (or further) playing with one character. She's an archer. She depends on stealth.

Higher level enemies are extremely difficult to hit. That's just an artifact of the level system (i.e. lvl 3 character, lvl 3 enemy, etc etc).

You CAN however sneak pretty much everywhere... collect all the stones, have all the "conversations" and collect a TON of loot.