Yes, the lack of readiness of the dwarves for their mission is very strange. I can only guess that Thorin and company never had much money, and that real armor and real weapons were expensive. They could afford things like inns and clothing occasionally, but major purchases seemed beyond them. Most of them were probably fixated on Smaug, and they knew armor and weapons were pretty useless against it for the most part.
It was noted at one point in The Hobbit that the dwarves were "sensible folk but not heroes, willing to pay for good work". In other words, we're probably talking NPC classes here, probably a bunch of commoners and experts, 3-4 warriors (Fili, Kili, and Balin perhaps), and 1 aristocrat (Thorin).
Maybe Gandalf knew what the runes meant literally, but didn't know the particular weapons that had those runes. Elrond was related to Gondolin royalty on his father's side (that sword Gandalf had belonged to Elrond's great-grandfather Turgon!), so he was probably in better positon to know which runes went with which named sword. In other words, the runes didn't necessarily spell out the name of the weapon, just some distinctive pattern that someone like Elrond would recognize.
