The melee dogs hit really hard thats right. BUT they also have next to no HP and can easily be CC-locked.
Maybe the damage should be lowered to 70 per hit?

I dont know how the arena guys could kill you in one hit. I thought it was too easy for a full 4 man party at level 2-3. I even managed to survive the first round when i entered solo as a rogue.

About the enemies leaving behind a large area when they die. They suck yes but they werent able to instakill any of my chars. Most damage they did was around 50%(?) for my full finesse rogue. Remember to use Teleport ( you can get the teleport gloves fairly early ) and encourage ( +2 endurance for everyone ) and you should be fine.

My equipment was mostly shit too. Rogue had to use the starting daggers until level 4 or 5. No good armor drops etc.

It may be a bit too hard for beginners but there is always the easy difficulty.