Wrong perhaps, but I'm sorry to say that it's not with the level :)
Cacos have quite a high to-hit ratio, no matter where you are. They're tough opponents, and that's how it goes. If you're an Intuition person, though, there's chance that with the exception of this level, you've hardly ever had to face them directly, at least not while they're in good health. Also, the RL's great against them, but 1 rocket's really not enough to make a difference. Later, however, it keeps them out of LOS so often, that they're rarely in a position to fire. Have you tried giving up after the second wave? Or even after the first one? Have you played with your tactics on a thorough, turn-by-turn basis? Have you exploited all known monster AI quirks, and as carefully as possible? Have you been using small medkits the moment you fall under ~60% and are in relative safety or under ~30% in almost all cases? I've personally passed nearly every single Hell's Arena on normal games, at difflvl HMP circa v0987 and UV circa v985, by doing up to all of these at the same time, and I know that even with a few bad mistakes on the way, it is very possible to complete, and in good condition. That aside, note that these Cacos are, as said, out of depth, and it is certain that, no matter what traits you took, they'll be harder to kill than they'll be later on. So instead of opening a thread accusing the game of being wrong, why don't you ask how others have been doing on it? Firstblood's been having problems with Hell's Arena on AoMr - he didn't accuse the game of being buggy, and you know that he's been finding them enough for that to have happened if this were the case.
But most of all, Hell's Arena might not always supposed to be winnable by all - it's a special level, and sometimes not all of it can be done without many, bloody attempts, and even then it might be through sheer luck. I, personally, really hate the CoS, and have only ever completed it once.