For the RPG purists Char skill should trump player skill.Slap on a few perks and have it governed by Int.Thereby making the char the dominant factor in how effective the compass is.
As far as the quest arrow is concerned in RDR you were given a shaded circle to give you an idea where your quest target was.If this is used hopefully a smaller area to search is used than RDR because as you know Nords are smarter than Texans.In Morrowind you could talk to Dumner scouts for directions(Texans win this one at least they can read a map) to get the arrow maybe you would have to talk to a Nord scout.I agree with those that feel once in side the dungeon no arrows should be used.Since it is easy enough to switch quests and move the arrow to the exit this is not a huge deal.
Improve it don't remove it