Was the case on my side as well. I though it was intentional since the fight is easy even in Arrange due to the low damage output.
Considering that Dark Nation 'absorbs' HP with his regular attacks, as well as puts Wall on himself and Rufus and heals using "White Wind", the fact that none of these things happened (didn't absorb HP, didn't apply Wall to itself, didn't heal its HP) during the fight made it apparent that this was a glitch.
So make sure to comment about stuff like that when you spot it. It's better to say something in case it is a bug that Sega doesn't know about.
The fight with all three enemies at once during the elevator fight seems normal for "Arrange", but all three models are too large for all of them to all be on the field at the same time (Airhawk and Thunder Gunner are right on the sides of the Thousand Gunner tank mech thingy, so it would likely help to shrink the Thousand Gunner enemy model just a bit during that fight so the three aren't in eachothers model frames).
Anyways, I'm doing a fresh install (as the limit break descriptions for Tifa are still showing "C-"). I have old copies of the game disks I've had for damn near forever, so I'll uninstall everything, reinstall it, and then apply the chobo patch and the MDef bug fix, before then starting a new game. :sighs: