I might just be missing something, but I've probably spent a total of three or four hours in Fungus Grove, and I haven't seen any plot-furthering items like bandits since maybe half an hour after I went West from the wounded Fairy General... Do I need to continue to level-grind? Being an avid Pokemon fan, I'm used to it, but I'd rather not if I can help it.

For the first two regions, the zones are all scripted and trigger from clicking a button. You just have to keep exploring the area until the next scripted event triggers.

Once you get to the third region (or if you're using the Festival zone), it's an exploreable map that's much more freedom and clearly directed.

So to answer your question, if the next zone isn't unlocked yet, just keep exploring in Fungus Grove.