that battle was the easist battle in the game for me, (the dragon, not the soldiers, though, I didn't really have probelms with them either, and that was before I did anything with my weapons.) I was about... level 20, maybe? You just need to use item creation to make at least one of your party members weapon really strong. I'd explain the whole process, but I don't really remember it right now. XD I'll go look for you.

And, well, doing that maybe seem like cheating and stuff, but if you want good weapons later in the game, you need to use item creation anyway, might as well start early.