Rockets needs to adjust and keep running to chase the open man, it's tough to protect the arc but it's needed to intercept the outside shots of their opponents, like what you said, they need to protect that area as gunners are just waiting for the outside drop and ready to take it whenever they see the opportunities.
Talent wise it's the Dallas that had the edge, Rockets are just lucky to have a winning streak and still close with the Warriors in replacing them int he 10. But although the Rockets have improve, we cannot deny that the Dallas have been playing their best season so far, so a lose to this hot team is not surprising. In fact, I still think that they will not past first round in case they'll make it to the playoffs, who would they play? The Nuggets? They can't beat the defending champ, but they will lucky if they'll face the OKC as they are also a young team.