In the past, martial arts served to defend yourself or any other persons you wished to defend. Or to defend your country on the batllefield. That was the purpose, to be a WARRIOR.
No, when it came to martial arts this was never the case. They were not intended to train soldiers on the battlefield, nor even really for self defence or so on, as that is not what they are designed for. It may be helpful to think of this in a modern military fashion, as it's not too dissimilar.
The regular soldiers (grunts etc) go through a bootcamp, or basic training, and that is based around what they need to defend themselves, those around them, their country, and so on, as well as take the offensive (which in a moral military setting is really a pre-emptive defence itself). This is similar to what the soldiers of ancient China, Japan, or really anywhere else got. Basic training in order to give them some kind of a chance in battle.
Officers, though, get a more specialised training, taking longer, and covering far more topics in greater depth and detail, including strategy and tactics, leadership, and more (depending on the commission). Not every soldier is even capable of being an officer, let alone gets provided with the opportunity. Martial arts are a form of this old "officer" training. They are a more indepth study of the strategies and tactics of a particular school/system, teaching through the medium of combative techniques, even if those techniques are removed from the reality of combat.
Examples of this are rather common, but to give an idea (other than the Hyoho Niten Ichi Ryu I gave earlier), we'll look to the Tenshin Shoden Katori Shinto Ryu, and a few others. The Katori Shinto Ryu is possibly the most respected martial art in Japan, teaching a very large curriculum, focused on the use of sword over everything else. However the sword was never a major battlefield weapon, so focusing on it's use, even in Japan's bloodiest periods of history, was not entirely realistic. It also contains a number of precepts that go against it being anything less than a school of strategy, such as sections of it's curriculum teaching things like proper strategies for castle design and protection, and teaching that no member may engage in fights without first gaining full mastery of the system.
In terms of full mastery, the Araki Ryu, a classical system well known for it's pressure testing and evolving of it's technical curriculum (rather than being stuck in dogmatic repetition of techniques) would grant Menkyo Kaiden (full mastery) licencing in an average of 15 to 20 years.... although during wartime it granted Menkyo Kaiden in times of 5 and 7 years in a couple of cases. Now, if this was really for the soldiers to protect their country, isn't even 5 years far too long to dedicate to training a simple soldier?
Other systems such as Asayama Ichiden Ryu teach almost their entire range of kata against simple grabs to your wrist, sleeve, lapel, collar, or some combination. Hardly the type of attack commonly found on a battlefield, however highly effective at teaching the principles and concepts of the art. Aikido's primary attacking method is an open-handed downward strike to the head, modelled on a sword cut... again, far from realistic, but great for teaching Aikido's lessons.
There you had dozens of highly trained martial artists - warriors ready to kill you.
To be honest, I'm not entirely sure what you mean by this.... dozens? Where? In what context? If you're talking about on the battlefield, that would be hundreds through to thousands, but they would hardly be what I would call highly trained martial artists, they would often simply be soldiers, same as in a modern army. The highly trained martial artists would be acting as the Generals and Officers behind the front lines, probably not being immediately involved in the physical battle itself, same as todays armies.
This doesn't mean that the opposing soldiers weren't warriors, nor that they weren't ready to kill you, just that they were as much a martial artist as someone who has gone through todays basic training is.
That created a need to be as hard as possible.
No, it creates a need to have soldiers. And those soldiers needed to be trained quickly and efficiently, which means that the training was very basic and serious. Same as today.
Today that need is gone, for most of the people.
Well, I would say that that need wasn't really there for most of the people anyway. I'll deal with the "commoners martial arts" in a moment.
Offcourse martial is watered down, when people train for self confidence, fitness, self - defense, mainly for general good. There is not need to be deadly warrior today.
This whole idea of the old days being "the real training", and those guys training for real, while we today don't, to me, is incredibly romantised. It just doesn't add up in reality. Remember that martial arts were by no means learnt by most people, they were only really available for certain sections who could afford both the time and money it took to study them, and for those who had a need (in Japanese terms, samurai, Daimyo etc - but how much was studied depended on the rank and role of such a person. A samurai may be a high-ranking general, or a common sandal-bearer, and the sandal bearer may train little more than the basic training of the common soldier).
You have your life, and martial arts besides that.
People before had martial arts, and life besides that. Sometimes.
Not really. Again sticking to the Japanese thing, a samurai would have martial arts as only one aspect of their life (it may be more for an individual such as Yagyu Munenori, sword teacher to the Shogun, and other professional martial art instructors), but for the most part martial arts were only one part. A samurai, depending on the time in history, was a tax-collector, beaurocrat, public servant, farmer, teacher, accountant, family man, and much more. And then, when the days work was done, he may train in his martial arts. For a fairly accurate representation of this, check out the film "Twilight Samurai", in which our protagonaist is a low-ranking samurai who hasn't really practiced his martial arts for years.
But there is still people that have need to be hard. It's security people, bodyguards, police, military, special military units..and so on. I believe they are train hard because they simply need so.
Again, this is the same as the way it used to be as well. And it can hardly be said that a two-day security training course is the same as training in a martial art. The two are distinctly different. And similar to our Araki Ryu example above, if you are getting a job as a security guard or bouncer, are you going to wait 5 or 10 years to be properly trained before you start? Are the empoyers going to wait a decade for you to be trained?
This is not martial arts.
I believe we all train how much we need. And i don't think that contact in training can be called hard training. It's also watered down, just litlle bit less. But it's inaff for today needs, most of us anyway is never in situation to test our skills.
There appears to be this concept that training in martial arts in the old days was far more dangerous, and people got injured/maimed/killed as it was so serious. The fact is that there have been systems taking measures for safe training methods for centuries. The Yagyu Shinkage Ryu and Kashima Shinryu, each hundreds of years old, both developed Fukuro Shinai (leather covered bamboo sword), with the Shinkage Ryu also having large soft gauntlets covering their forearms to protect them. This may have been considered "watering down" back in the day as well, though....
As I have said, though, there really isn't any watering down, just adaptation of training methods to the needs of the current students/society.
To train like in the past, it's probably inconceivable to most of the people.
Mainly because people don't understand what the training was like in the past, or what it was for. Honestly, they're probably not too far off training like in the past right now, they just don't understand how to reconcile it with their romanticised imaginings.
Is it possible for the warrior and the SD'er to be one in the same? With your version, the warrior is intentionally seeking out battle. Another way of looking at it, could be, being humble, but also not turning his back from a battle, should that battle come to him. I guess it would depend on the person....some people dont want to fight at all, and do everything in their power to avoid it, and even when faced with escalating circumstances, still refuse, while others still, if possible avoid it, but when that doesnt work, opt to fight. As an example...remember that youtube clip that was posted, where the karate guy was outside his house, with the punk yelling and screaming at him, getting in his face, pushing him, and then finally, after much abuse, the karate guy fought back. 
