Hrm... how many heart containers do you have? You can have nine at this point, so I'd recommend trying to get them all - the health really helps. If you want a list of the hidden ones you can reach now...
A shield also really helps to block his magic projectiles. There's two general strategies. While arrows only deal half the damage of the sword to him (if you don't have the better sword, make sure to get it by swimming into a waterfall just north of town), they allow you to stay away from him. Whenever he plops down a clone, you can walk past and quickly hit it with an arrow to kill it. As long as you keep moving, he'll have trouble hitting you with his other two attacks. His teleporting attack can be tricky, but there's a specific angle you can move away from him at that makes his shots have trouble tracking you. You can keep your distance and pelt him with arrows from afar. OR, you can try getting up in his face and using the sword. Because he can't hurt you just after getting hit, you can slash at him, then quickly run through him to avoid taking damage. This strategy becomes a bit more difficult when he hits half health though.
If you follow all that, you should be able to bring him down. If not, let me know and I can tone down difficulty for you a bit. My goal was to balance the game so that it would provide a reasonable challenge if the player didn't buy any items, but shouldn't be too hard with a shield and potion. If Dracus is too hard even with all that, then I made a mistake, and I can fix it.
Other than the difficulty issue here though, I'm glad you're enjoying the quest!