I have found that using a druid carebear works well, but not in the way you are doing it. Control the lowbie and have him do the killing. Use your druid (ungrouped) for buffs and heals, Faerie Fire, and possibly switching to Dire Bear and taunting off your lowbie, without doing damage.

Sorry, don't know what to tell you about looting. Get the lowbie some Imbued Netherweave Bags?

Good luck!