The best weapons available on the first + second playthrough are the claws (forget their name) and the rocket launchers (lt kilgore). The charge attack on the claws is devastating and, if used correctly in a combo, lt kilgore can deal stupid amounts of damage.
I didn't really use many of the moves other than air dodge and the animal forms, stiletto is indeed useful for keeping combos flowing though. It gets you back into the action very quickly if you've strayed too far, thus keeping the combo counter ticking over.
In Normal and Hard i didn't use a single item, like you i relied on continues when i cocked up. In infinate climax however i did use loads of lollys etc as it's much, much harder and it is near impossible to complete many of the fights without their use (a continue will bring you back to the beginning of a specific fight with full health, useful in the lower difficulties but pointless if you can't make it through that fight at all without the use of a lolly in infinate climax).
If i were you i'd focus on saving money to go towards weapons then, when you complete your Normal playthrough, concentrate on saving up for the accessory that allows counter attacks. It's one of the most useful accessories in the game as not only does it block an attack, if timed well it deals significant damage to the enemy, if timed perfectly it also initiates a free witchtime attack.
By the end of my Hard playthrough my best weapon sets were claws in electricity form on the hands and flame form on the feet and then my second weapon set was lt kilgore. I'd build up a combo with the claws then finish with lt kilgore to do some silly damage. Doing combos is all about the timing with which you press the buttons, for example five hits one after the other will do five attacks, four hits, a pause and another hit will trigger a really decent combo iirc (it's been a while so my numbers might be off). Basically it's all about at what point in a combo you pause, then initiate another attack.
With that said, as you say, some of the guys on youtube are just silly good, i can't do half the stuff they can.