My FOURTH attempt at finishing Xenoblade Chronicles... here I go!

[VideoGameAccountant]

This thread is a little old and I'm sure everyone has given you some good advice, but I'll see what I can add. Big fan of the games but it's been a while since I played XC1.

 

• Your party should usually be set up like an MMO. You'll have a healer, tank and DPS. Shulk is your DPS as a lot of his abilities attack from the side or back. What you want to do is let Reyn take the damage and run around as Shulk and attack enemies. You'll get a healer before too long (the chick with the rifle). That party will take you through the main game. 
• You can choose any character, but I would stay with Shulk most of the game. He only gets a few arts, so try and learn them. Basically, move into position and use them. 
• Notice that gray circle in the middle of your arts? That's the character's unique ability. For Shulk, it's the Manado arts. Early on in the game, you should just make sure it's full and only use it to give yourself the ability to attack mechs. Once you get past Colony 6 (first major area), you can experiment more. 
• When you get to a town, try and pick up all the quest you find. They are your best source of money and experience. If you are obsessive and do all the quest you can, you'll be massively over leveled. You also don't have to turn a quest in, so if you get all the items or kill the enemies, the quest automatically completes. There are some you have to go back to town for, but these are the important quest which usually gives you more money and experiences. You don't have to worry too much about the quest, but at least do them as you explore will give you the boost you need without mindless grinding.
• You will probably see a little blue gauge in the top left corner. That's the party gauge. It fills up when you get good hits in (like using Back Stab behind the opponent). You'll see a little symbol around the damage numbers when you did it right. This fills up the party gauge. Shulk is very good at doing this as all of his arts based on position will increase this. One bar can be used to revive a fallen ally and if you die, your party will revive you. You can also use all three for a chain attack which can do big damage. You should only do a chain attack when you are sure that you won't all die after doing it. I don't remember how it exactly works in XC1, but once you understand it, you can do big damage. I think it's based on everyone using the same color.
• There is a thing called topple in the game. If Shulk uses an art that "Breaks" another character can use an art that "Topples." The enemy has to have Break first. They will be incapacitated for some time. You can then do daze, which Shulk has though I don't remember the benefits to Daze. No character has the full chain (i.e. Shulk can't topple but can break, Reyn can't break but can topple). If you set it up, your AI allies will follow up. Another good reason to stick with Shulk.
• Remember you can upgrade arts. These also decrease the cooldown time
• Xenoblade 1 did this weird thing where enemies at higher levels are harder to hit. Just be mindful if you're attacking enemies higher than you are.
• Don't let the AI control Shulk (as well as the mage character you'll get later on). It has no idea how to use them effectively. The CPU also struggles a bit with your healer, but is serviceable. The rest of the cast it can do alright.

I will say that both Xenoblade 1 and 2 get better as they go along. You're not playing 2, but I would say it does start a lot slower than 1. The combat system is also more complex, but rewarding when you figure it out. The game also gives you a better groundwork. As far as story goes, 1 is better than 2 but 2 isn't bad. You just kind of have to accept it's weird bizarro world (which is less of a problem in 1). 1 also has better characters. I will say you are making the right choice of playing 1 first as I feel 2 is a harder sell if you aren't invested into the series since, again, it plays more by its weird rules. 

Hope this helps.