The hit detection is not broken, it is intentional. You need to visually catch a bug in order for it to be caught and that will not change. The spawn rate for bugs has been incresed several times today and I think that will probably continue with the playercount being so high.
As for the witch, she will offer you money based on what bug it is and whether she really wants it or not. Every day she randomly decides on a bug which she needs for her potions of the day and will pay 1.5x more for it. Today she is looking for grasshoppers! Every other bug will sell for the regular price.