Oops, I forgot that I disabled that final boss for testing :D (you can enable it by editing the resources/area/catacombs.lua file, just need to remove the -- in front of the battle() call)
Random encounters happened every 5 to 10 steps. (instead of a random chance on each step) So that cannot be 3-4 steps :D
There are quite some hidden mechanics, the battle order is actually defined by agility, so faster characters attack more often. I thought about visualizing this, but didn't know of a good way. (it works a bit like the ATB timers of Final Fantasy, but then without the waiting for a timer to fill)
And yes, the squid tentacle attack is bugged, it deals 0 or a huge amount of damage. I made a mistake in it's stats, causing negative damage calculations.
The part after the jail I added without any player testing, you're not the only person that missed finding that hint...