The madness thing is a special fight; as far as I recall I never encountered it again after that one fight. It might make a reappearance in act 4 which I skipped a fair amount of because I was anxious to restart and just wanted to see the ending. And I really enjoyed that madness fight because I found the rest of the island a cakewalk, that was the one interesting encounter in the whole place.
I do agree about the relative pointlessness and aggravation of crafting though. I don’t craft anything other than healing potions, arrows, and skill books. I think I wish they’d just add another civil skill for alchemy so that you could get higher tier potions from one ingredient and then make the ingredients rarer in the wilds and more expensive from vendors.