Palpatine spent at least two decades as an unassuming politician and using the Dark Side to shield his true identity from everyone else, even the vaunted Jedi. Of course they underestimated him. Everyone did for years, and it was meant to be that way. His humble- nice-guy persona was necessary in order to win the support of the Senate and rise to power.^
Oh, Palpatine/Sidious would have killed Obi-Wan in minutes...if not seconds. Look how quickly he disposed of Agen Kolar, Kit Fisto and Saesee Tiin...three of the most experienced and talented swordsmen in the entire Jedi Order. The only Jedi powerful and skilled enough to (almost) defeat Palpatine were Yoda and Mace Windu, and Mace would have killed him had Anakin not stepped in at the last second.
That lightsaber fight is just ridiculous. Instead of showing how badass Palpatine is by taking out three Jedi masters so quickly, you're left wondering why two of them just stand there and get stabbed. Very poor fight design.
Everybody under estmates Palpatine, Luke threw away his lightsaber and got hit by Force lightning, even Yoda took a blast while just standing there monologuing.