The hell it wasn't broken. There were a lot of serious problems with the combat in ME1, making the game incredibly annoying when you try to re-play it after ME2.
See, that is where you're wrong.
RPG style combat does not work with a real-time third person approach as a start.
You have certain expectations, that when the game expects you to aim with a crosshair then the bullets will actually fly to the place you're pointing at (a little spread and kickback in full auto mode is acceptable though).
The game will require a certain level of player skill at third person shooting even if everything works fine, ie. you have the best possible weapon with the best mods and the highest skill level. But if this player skill is artificially ruined by introducing negative modifiers on lower levels, then the main gameplay loop becomes frustrating and the player loses any kind of enjoyment.
In games like X-com 1, the dice roll based combat works because no player skills are involved. You point at the target, the game does some math, and you either hit the target or not, based on the squad member's abilities. You can save in every round if you want to, and you can counter the squad's weakness in accuracy through various means, like walking closer to the enemy, or reserving action points for multiple characters to have several backup shots in case the first guy misses. In short you have many tactical options.
But in ME1, you peek out of cover, try to shoot at something, and you see your shots miss all the time, and the realtime combat and the lack of precise control over squad members does not give you enough options to compensate for that. Later through the game, an Adept may have enough biotic power to disable most enemies - but for most of the other classes the main method of offense was shooting (and it's the most effective in general). So the intentionally broken shooter gameplay inevitably lead to frustration.
Then there are the other issues: enemy AI, level design, class based restrictions, poorly considered skill system.
As an example, on my latest playthrough I decided to go with a Sentinel, so that I can import it into ME2 and try Insanity mode. The game presented me with the best possible example for its set of problems at the boss fight in Liara's rescue mission.
- the area was poorly designed, there were no safe areas with cover, I always got surrounded by the geth and the krogan; and due to the poor cover mechanics and camera control, I usually didn't even see who shot me and from where
- squad members were silly and got killed in seconds most of the time
- the krogan almost always charged me, incredibly quickly, and the sentinel was of course unable to stand up to the damage
- the offensive powers failed to do any serious damage, the guns missed all the time, usually because by the time I was able to actually execute something, the targets have moved away
- also, the skill system was flawed because the gameplay required your team to be good at several things at once - you couldn't open crates to get loot for the equipment upgrades if you didn't have electronics and decryption skills, you couldn't use weapons and armor if you didn't have proper skills, you couldn't use certain powers if you didn't have certain skills, and you didn't get paragon/renegade options if you didn't spend skill points on that too... so you either became a jack of all trades, or you were locked out of some part of the game (loot / equipment use / conversation options / powers etc.)
All in all, here was a very tough battle that could have been won by carefully positioning party members, combining powers, and concentrating fire. But this could only be done in an isometric view, with turn-based gameplay!
But in ME1, enemies either hide so well you can't see or hit them, or they charge you so fast you have nowhere to run and melee you to death; and you can't even rely on simple shooting because unless you maxed out skills, your character can't hit anything. In the end I got through by pure luck on like the 20th try and almost broke my controller in frustration several times. This is by no means good gameplay, this is fundamentally flawed by trying to be two things at once and failing at both.
No, ME2 actually fixed the gameplay by making the main game loop of running and gunning actually enjoyable. You only get frustrated if you're bad at the actual shooting - but if you're bad at that kind of gameplay mechanics, then you were frustrated by ME1 just as well, even after you leveled up everything.
Again - in a shooter, if you get a crosshair, you want the game to put the bullets to the point where you're aiming at.
