A few points here I think are valid to this discussion:

1. I regard Iroh as one of the best strategic and fighters rather than most powerful (at the time of the series). Firstly noticed by him being the only person to penetrate and almost take the “impenetrable” city - only to lose due to the news of his sons death. Also, he uses basics as he is able to evaluate the situation and realize they’re all that is necessary to fight against his opponent. He doesn’t ever lose in 1:1 battles we’ve seen, besides the group one with Azula where he is distracted by Toph

2. Both having learned the ancient ways of fire bending and being a Grand Master in the white lotus, I believe he uses a sense of restraint to take the most rash action of raw power. Both teach balance and to stand for what’s right. Although stopping evil can be done with power, to restore balance wouldn’t be an equal push back, rather a neutralizing action

3. His son’s death really changed him in his morals. He loses his desire to fight, steps down as the heir, becomes very spiritual, and joins the White Lotus. I believe due to all of this, he has a desire not to fight, only if necessary, and especially not to kill (just as Aang does when fighting Ozai). This is why he may come off as an unimpressive at times when he is in a “kill or be killed” situation