Q: Is a No Battle/Encounter Hack possible?

Extra story events would really be a cool thought, although it would definitely be a much larger undertaking than the initial idea. Perhaps byrjun could start with the original idea and then decide if he would like to go further with these skits? I think that it could certainly fit for a 2.0 version once he's got something solid and a little bit of experience.

On the note of flavour, perhaps you could also add more descriptions for the Items that you find in chests? As in, you find a Genji Helm, and then the game gives a short description of the Genji Helm, how it was made, who used it, etc. I'm not suggesting anything more than a text box or three, but it could be a nice touch. You're right that a treasure hunt based on a numerical system might be too "gamey", but a treasure hunt where you find more and more rare/valuable treasures from a descriptive standpoint would probably capture the pros without the cons there. And dull things like a "Potion" could possibly be replaced with something more interesting, like an "Old Vase". Again, something more to consider for a 2.0.

If you are thinking of making some fights on the Veldt or in Gogo's Cave, I would like to suggest that maybe all encounters should be escapable. In particular, Gogo's Cave has an encounter that will pop up fairly often that is inescapable. That way there is still the feeling that you can die, but also the option to mostly opt out. I also want to point out that Veldt encounters may require some thought, as they are normally encountered throughout the course of the game, but can't be encountered as it is because encounters will be removed. It's not impossible to deal with, but you should give some thought on how you will go about dealing with it.