It should be noted that while Dueling Style requires one hand to be free from a weapon, it does not require the hand to be free. You could, for example, be holding a shield.
And yes, this is how the rule is intended to be, as far as I can tell. And yes, that makes Dueling Style OP compared to the other bonuses. +2 Damage per hit and an additional +2 AC potential. A jolly good time for all.
