Martin Septim basically becomes an Avatar of Akatosh and fights a full-power Dagon.

There are so many things to suggest that this is completely wrong, or that there was a far bigger thing going on there.

Partially because the whole Deadlands plane (AKA Dagon's true form) doesn't crash into the Avatar of Akatosh's face, partially because it was likely the Champion of Cyrodiil's mind attempting to make sense of some incomprehensible battle between two acausal extra-dimensional abstract entities, partially because engine limitations made it crap.

Demigods such as Vivec and Almalexia fight like regular people.

Except when Vivec actively stops Baar Dau hitting into Vvardenfell with 3.5 teratons of TNT energy just by willing it? Or when Vivec carves the landmass equivalent of a small island in while fighting the Ruddy Man?

What would be the point of them absorbing power from the Heart of Lorkhan if they only fought like regular people in any case?

Most of this is down to engine limitations and casualization of in-game fights to fit the medieval fantasy knight/mage/assassin/beast/demon archetype all of the casual TES players want to see. If it were represented in the bigger true picture, you would have incomprehensible acausal entities invoking extra-dimensional, abstract, interplanar metaphysical war on each other. Game engines clearly can't represent this, so I personally see the cruddy in-game fights as metaphorical representations of what is really going on in the grand scheme of things.