The dragon armour quest is optional, though you do need the forged breastplate to get the dragon helmet.
If you approach the area slowly, and/or move around the outside of the room, you should be able to draw off the weaker opponents there, and then be able to attack Rak'Sheen alone.
The passive Stun skill helps for melee fighting, especially if you can get the first hit in and keep hitting (a higher agility helps with your chance to hit).
What are your resistances like? I don't recall what attack that dragon uses, but you could use a purple potion to boost your resistances temporarily (and perhaps also use strength or agility potions, if you have any), or simply leave and return to the castle when you are at a higher level or when you get better equipment.
Enough
restoration potions will get you through any fight, as long as you can not get taken out in one or two hits.
There are various combat techniques that are quite effective, many described in the topic
Chasing Josie... (spoilers). These tips should work for any strong opponent, and a quick recap follows.
MeteorStrike can be cast as quickly as you can left click, and has a bit of a stunning effect.
Survivor's Curse can be cast repeatedly on a target to drop their resistances, and combined with any elemental attack.
Blind + Hell Spikes is fairly effective, though Hell Spikes needs to be maxed for best effect. With groups of opponents you can skip the Blind spell.
Deadly Gift and scorpion traps will let you take out any opponent.
Any character can use a hit and run tactic with a bow, or Deadly Disks, etc. Burning Wall can be used either to slow down (and damage) a following opponent, or to surround an opponent (or group) to do even more damage.
A warrior can drink a shadow potion, stand next to an opponent and use the spin attack (clicking on the ground somewhere) to do damage but not turn visible. This is almost a cheat, and will make any fight easy (and boring).
The Frost damage bonus on a weapon (random attribute) is quite over-powered, freezing any opponent once you get a hit in (then you just stand there and whack away until you win).
