Still getting smoked: what other progression is there?

It wasn't really different even a few years ago. After the introduction of Nightfall, there was so much power creep that the old Prophecies content seemed superb easy, and even Factions didn't pose a threat. That changed the mindset a bit, with all those new powerful skills around the corner.
Apart of that, and the introduction of EotN (even more power creep - consumables, PvE skills, more heroes - which actually make the game EASIER and let you bring more variety without crunching numbers), it's pretty much the same over the years.
The difference, as many already pointed out, is in the CCG-relation of Guild Wars mechanics, especially to MtG. Your own build needs some synergy. Your team build desperately needs synergy, and even if thoroughly thought out, you still can get rolled if the opponent's build (deck in MtG) simply counters yours (which would be viable in most other places, but in that certain one you may fail - compare running a really nice creature-heavy deck in MtG against a white deck with lots of protection against chosen colour and spells that destroy all creatures on the table). You can get your build wrong, as well as just non-effective in that particular area of the game.
Still, even in other games, including single-player RPGs, you can't really always run what you like. Dragon Age? Try playing without any healer - sure, you can always use hundreds of potions, but that's just a substitution to direct healing. 90% of MMOs out there also require tanks and healers in your team when raiding, some even require tanks when going out for some PvP. If you thinly spread your skill points on useless stuff in Fallout, and waste perk points for something you won't really benefit from, you're pretty much screwed, especially when not playing on easy mode. Even Diablo - while you can build your character to your liking, you have to introduce potions to your overall build, and when there are no potions in Guild Wars, you have to use skills that would compensate them.

All of that said, most builds should do just fine in Normal Mode, even of EotN, as long as you apply correct tactics and a stable basis (decent healing, some shutdown/mitigation via mesmers/minions/spirits, properly thought DPS). Careful pulling, corner-blocking and proper calling are just some examples. Sure - you still are limited to some point, as in you will have a particularly hard time fighting a group of centaurs that spam condition removals if your whole DPS idea is based around conditions, but again, that's the MtG-like natural counter-deck to yours and you have to adapt.

Just a point on this, but the RPG element of GW is intended solely for the PC. Party-wide RPG was never part of the design brief, Mercs are only basically intended to allow custom skin heroes, not custom functionality, and they only exist because the long term player base wanted them for ages. Much like being able to take 7 heroes...

Both Prophecies and Cantha were actually designed to be played using henchmen or humans, since heroes didn't exist. Eye of the North is an expansion of end game content level, so it has to be treated as such, meaning you will have to build for it, or you will fail. And all of the content was designed with a 3 hero limit in mind. That's why EoTN outposts have henchmen.

It has nothing to do with the age of the game, and everything to do with the intent of the design. It's why you're limited to 8 skills in the first place.

Oh, and just a thought, but you might be better off with henchmen than heroes if you don't have all the PVP unlock packs, since the henchmen have skills regardless of whether you've unlocked them or not.

Honestly, aside from some of the real hard HM missions and elite areas, you can get by with "style-ized" heros/mercs based on "fictional history".

You just need to make sure that the builds are "right and maximized" (both from that mercs skill bar standpoint and from a party fit/balance standpoint). So if you want to run a "Dragonlance" party (to borrow the old AD&D compaign) you can do so (Raistlin is more or less a necro/rit, Caramon a warrior/para, and whatever others as their respective closes match GW profession).

No reason to dash that real nice classic party concept completely by feeling you have to be forced into the "3 necro, 2 rit, 2 mes, etc" 7 hero party that most everyone who doesn't have your really cool idealized view of fantasy gaming runs. Just have to work harder (to figure out what combinations of skills are best) and play better (you want be able to basically sleepwalk through most missions/areas like you would if you have the most popular team builds). If you're willing to do that you can get it to work well enough.

On the working harder note, I'm assuming that you have become extremely familiar with the basic mechanics of the game right? Talking about flagging, pulling, kiting, using corners and tight spaces to cluster mobs and knowing the sequence of who to target when you face any enemy right? Things like that are going to be even more critical that you do it real well to get your concept party through the real tough areas.

Yeah, you can play like that, but it's not Guild Wars that is lacking when you get rolled, it's your party. Guild Wars was never intended for that kind of gameplay.

Oh I absolutely agree. But if the OP really wants to do this, he can. It just makes things a lot more difficult. So if he's looking for a challenge then this would be a challenge.