The area of effect is fine. Only a direct shot kills. Keep moving and it's not a problem.
No, you can kill someone without a direct hit. Go test it out for yourself. You can shoot someone up to 2 feet away from them and kill them. This is with either factions rocket troop.
Do this quick test to find out yourself. Go up right up against a wall and shoot it, if you die then you know it doesn't have to be a direct hit.
When you try the same test with a super battle droid's rocket only a third of your life goes down, though we all know its rocket kills with a direct hit.