It never said he lost half his power after he fought the 1st hokage. Itachi just said he's just an outer shell of his former self which is to be expected since he hasn't fought since the fight with the 1st really.
http://www.onemanga.com/Naruto/395/10/ , there it says his is more advanced than the 4th's.
What would Madara gain by killing Sasuke right now? I think he knows Sasuke will attempt to kill him so that's why Madara might kill him. Either that or maybe it's to make his "perfect MS" he's been talking about.