Yes you do end up with the items back at the inn if the server has been reset. If the server hasn't been reset you go back to where you were when you logged off.
If I team up I always let the person know how long I can be on for.
The basement is always hostile and the badguys do respawn.
Try the tradeway it will probably make for eaiser leveling up. Also try some of the henchies to help you out (a.k.a Cookie)
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