[Radek]

Yes, I know the phenomenon. A solo character, equipped with bleesed (max blessed) Wizard's Blade and Assassin's Dagger and with high combat related skills, can demonstrate it as well.
Another cheater of this kind is Kol the Heretic. Once, I run into a bug in the game that caused Erathsmedor and Kol the Heretic losing their scripts. I had to kill Erathsmedor - and then I tried to kill Kol. Again, I got messages "Kol the Heretic hit for 133 Hit Points..." but - Kol lost not even a single hitpoint. Killing Kol at Erathsmedor seems to be impossible.
Back to Kerah: yes, it's a foul trap and a result of hasty designing of the game. Note how little suffices for losing the game there (not mentioning the crashes):
1. If you have only one Holy Water and you fail curing Kerah with it then you lose the game completely.
2. If you have more Holy Waters but if you forget to split them in your inventory and if you fail curing Kerah at the first attempt then you lose the game completely. Kerah will take all your Holy Waters at once in this case.
3. If Kerah is flying and if the player does not know your trick with jumping then he always fails giving the Holy Water to Kerah and loses his game.