For the improved rune recognition you have to use the version 1.2 of Arx Libertatis.

When I try to download 1.2 it get's blocked claiming it's harmful to my computer. Is this just Chrome acting up, or is there a real problem with the windows installer?

It's a common thing with this last version, most browsers use Google's machine learning algorithms to try to identify possible dangers. You shouldn't trust an stranger on the internet, but I assure you in this case it's a false positive, I installed it and played the whole game with it without any issues, also I've been following the developers irc chat and one of them even posted about this issue on the steam forums.

If you get a warning when trying to download the mod installer on Chrome, you can go to Settings -> Privacy and security -> Security -> Safe browsing, and change that setting to "No protection" temporarily so that you can download the file.

Ok, I was worried that the site had been hacked or something. You know how long has this been a problem?

Since the release of the latest version one month ago (2021-07-13).

Problem with false positives is much older:
https://www.gog.com/forum/arx_fatalis/arx_libertatis_10_released_a_crossplatform_port_of_arx_fatalis/post99

How do you download the 1.2 version? I only download using offline installers and don't see any different versions of the game. I wanted to do a magic playthrough for my first time but the game can't even let me cast the basic torch spell.

https://arx-libertatis.org/download

what about without arx libertas....?

Try making the gestures really small, few widths of the magic cursor at most. The particle effects will make a vague blob, but it should work better that way.