Alright, compromise then ...
Option 1: Dlayos keep hitting this hard and being deadly opponents. Gladly but then I believe if they are able to kill with one swing, they should be able to die with one as well. Now obviously this can't happen because players always have the initiative. But it would be possible to give them less HP so they can be killed with three or four good hits. Not the ten to twenty it takes now.
Option 2: Reduce their lethality by giving them a lot less damage per hit. Say about 100 damage points per hit, which still makes them formidable opponents but at least makes them doable in groups.
Option 3: Keep Dlayos as they are, fights for the duel-loving people who want the thrill of taking down a nearly impossible foe. No problem with it here. I'm happy to keep ignoring Dlayos as long as they don't become important within the Settings.
For the loot ...
I understand you guys wanted the staff to be special. It was a new item, a lot of work went into it and everyone wants their work to be appreciated. So it's made special for a while, like almost every new item and only handed out through events or something. The few people who have one are the center of attention and everyone wants to know where they got it. All nice and dandy but are you really intent on keeping it that way?
Think realistically, a staff is nothing but a wooden stick, a branch, ... It's the simplest weapon available to all besides maybe half a staff or a wooden club. It should cost nearly nothing and be available everywhere. In planeshift however, staves are only found on Dlayos and because of their hard to get rarity, they're sold for 50.000 tria or more. That a special staff with crystals attached or what not gets this price fine .. but a wooden stick? Is it really so hard to have an NPC or two sell staves for a few hexas? It's been long enough that staves have been revered as rare objects, I think. Release them as roleplaying tools now, as which they have a lot more value than as rare bragging items in my eyes.
The rest of the Dlayo's rarer loot is quite fine with me, those are actually unordinary items that can be rare.