-- Last Updated: Oct-29-12 8:32 PM EST --
1. is it common sense that with a rudder down you will get issues with waves from the side?
As above, issues with waves from the side are you not knowing how to brace into the wave to handle that. But... a rudder adds to your issues in two ways. One is that the water you are already allowing to push you around has more surface to push. The other is that you may be distracted by having to fuss with rudder controls, which while it is not necessarily fatal isn't doing anything to help you stay upright and in control. That is all about your edge on a wave face, not rudders, so why add the fuss?
2. Do most people use the rudder to actually steer or just to counter the current from straight tracking?
Beginners and people who race - a pretty disparate group - tend to rely on a rudder for steering. Beginners do because they can't edge and racers do because it is more efficient to do that in terms of time. The large crowd between those two of general touring paddlers tend to either stay in rudder mode for various reasons, including ease of handling a heavily loaded boat for a long tour, or find that they'd rather rely primarily on edging than deal with the fuss of a rudder. Hence all the skegged sea kayaks out there.
Skegs can be useful for turning if you also play with the wind to free an end and let it be blown in a desired direction, but that's a whole different discussion. Skegs are similar to rudders in their ability to help manage wind.
I personally have a larger issue with rudders in surf, which I think pikabike mentioned. It is a sharp edged object - some of them metal - connected to wire cables, all of which could be a lot more dangerous to become involved with or whack in the surf than the bare and unadorned surface of the kayak itself. I never had occasion to take my first, (oops! I meant) ruddered, sea kayak into the surf. But if I had the rudder and cables would have been tied down, wrapped and padded.
Speaking of whacking - I hope you were doing this with a helmet.