Out of curiosity, is it possible to progress with quests/dunegons/storyline by just constantly retreating from random battles and waiting with storyline events or quest encounters to pop up? I'm not sure if there's a correlation between avoiding fights and getting quests done (ex: the forgotten tomb nest quest) so I just wanted to ask about this.

I know you don't have to participate in any of the battles that crop up in order to complete non-battling quests (unless one jumps out at you while completing it, but I digress), since I do it all the time. |D Not sure whether the same is true of story line events, though.

Only battles progress the story line. However, in dungeons, the random events also progress you as to keep you from only doing the random events.