In
My Documents\My Games\Skyrim\Skyrim.ini -
NOT SkyrimPrefs.ini - locate and edit the following, or add them if they do not appear:
[Actor]fVisibleNavmeshMoveDist=12288.0000[Combat]fMagnetismStrafeHeadingMult=0.0fMagnetismLookingMult=0.0f1PArrowTiltUpAngle=0.7f3PArrowTiltUpAngle=0.7
fVisibleNavmeshMoveDist controls the range of collision detection on the arrows, preventing the 'arrow passes through long range targets' issue. 12288 is more than sufficient.
fMagnetismStrafeHeadingMult &
fMagnetismLookingMult control the horizontal auto-aim that some players complain about. Setting these to 0 removes this feature.
f1PArrowTiltUpAngle &
f3PArrowTiltUpAngle control the initial trajectory of the arrow in 1st & 3rd person. This corrects the 'arrows arc prematurely and hit above crosshairs' issue. Note that this makes arrows hit slightly below crosshairs at very close range. http://www.youtube.com/watch?v=HMMTJta_fPs.
If you do not want one of the above changes, simply remove the corresponding lines.
Edit: These tweaks should be safe, but it is always wise to make a backup of your INI file before editing. I take no credit or responsibility for any injury or death resulting from the use of these changes. Unless they deserved it.