I bought some Mana Potions (10 of them for 3k in Ethernia)...I put them on my Sylestis, so that I could have full mana before jumping in the battle against Fire Eyes...When I went into the battle, they had 0 mana. :\ I tried refreshing, thinking maybe it didn't load properly (as that sometimes happens to me during quests), but it did not resolve the problem.

Also, while battling (at this point they all have about 50 mana), I saw the Heat of the Moment come up. Set all of them to block. My pet in the front lines lost about 40% of their health.....That's insane considering that would have to be over 1,000 health...I noticed it right before I hit the 'end turn' on the following round, so I missed the chance to see if it was actually critical.

For your first question, arena battles always start with 0 mp (I did the same thing you did orz ).

As for the damage fire eyes does, I would recommend taking a look at this thread. They discuss both his high damage and tips to beating him.

Yes, when beginning an Arena battle, your pets' mana is set to 0 and all buffs are removed.

For the Fire Eyes question, Skull Crush hits fairly hard, especially if you have a non-tank magical dealer as your lead. It is capable of hitting for over 1000 damage non crit.

Most of the Arena fights can be made much easier with the use of a tank. It doesn't necessarily have to be an Earth pet, or even Physical, but a high health/high agi pet in your lead will help a lot with all of the challengers.

Thank you for the help. There is absolutely no warning (in the arena or the forum post introducing the arena) that the mana is 'destroyed' when starting the challenge. If there is a warning, it's VERY well hidden, lol. That's quite a bit unfair, considering others are making the mistake as well. Please add a warning for that, to help save others their gold on mana potions.