I love G0-TO's attitude...not to mention his little secret about his master Goto (Might i suggest you use KSE and change his influence to 100 ^^) Ok so sure to make him 'decent' you would have to hack the savegames but thats something i do all the time (Namely starting with Prestige classes, or turning the characters into droics or droids into jedi's etc..)
Well maybe because thats how it has always been in the DnD games (atleast NWN and KOTOR)?
No really it's because a player might battle him at lv20 or lv30 for that matter. It is to ensure the player is always left with a challenge...problem is that with higher levels come more powers which doesnt 100% align up with the foes
PS: What Kotor 2 tool are you using? im still stuck with a semi-working version of KSE (Kotor Savegame Editor) slightly 'reworked' so it can read Kotor 2 savegames (Just barely o.O)...it works perfect when you need to change alignment or NPC names though
PPS: Well the most 'storylike' reason for his saber not to have any upgrades could be that he has learned the ancient sith fighting styles like the dead sith lord on Korriban is it? used. As far as they know alot of the sith back then favored standard blades over sabers but honestly im not sure...never bothered reading much background material on the SW universe