1) I never played pal2, what was the battle with xiao yao like? is it in the beginning of the story, why did they fight, what characters did you control, etc.?
at the beginning of PAL2, Li Xiaoyao was trapped into a place where everyone and everything was faked. And later (at about 70% progress of the game) Wang Xiaohu (that boy in the first village of PAL1 who mentioned that there was a "fairy" in a island after Aunt Li became sick, later becomes the main character in PAL2) and Shen Qishuang (a girl who wasn't appeared in PAL1) went into that place to get him out. Then when they met Li Xiaoyao, they thought he was faked too and attacked him (...and this was the real one, so you are supposed to lose here).
2) in pal1 who are the people you can battle and still lose to? some that comes to mind is the eyepatch guy, yueru's father, butterfly girl and the ghost (the green one in snow tower)??
well for Lin Tiannan and the butterfly girl, you cannot lose in several rounds otherwise it will still result in a big game-over.
There is also Gai Luojiao (the woman who fighted Shi Zhanglao before Zhao was captured by Jiansheng - only in DOS or Win95 version, in XP version losing to her will be a game-over too), but she wasn't hard to beat at all so it would be better to beat her unless you are in such a hurry
3) is xiao yao's dad the strength of immortal? or is he mortal level? (Refer to the 6 realms: god, immortal, mortal, demon etc.) is he famous only in the hometown or as famous everywhere else?
I think the "6 realms" only applies to PAL3 and later versions and not 1 and 2 (it seems both 1 and 2 has lumped ghosts and demons together). But for your question, it seems he was "mortal level" but was famous everywhere (the one which mentioned him in the first village was supposed to be famous everywhere too).
> 4) in pal2, is xiao yao famous everywhere? does everyone know he defeated the boss? and did he achieve immortality?
Li Xiaoyao was the leader of Shu Shan Clan in PAL2, and was indeed famous everywhere (even for the kids in the first city)
however I don't think he achieved "immortality" - or at least this wasn't mentioned... but judging from the ending picture it was likely that he would not involve in fighting that much after this...
> in the spider/butterfly town, are there any details into the place with women where xy enters alone without yueru? just curious *ahem* and provide *details* as much as possible ^^
well I don't think he was talking about that burglar scene
that place was actually a whorehouse (and you can even ask for a prostitute there too - but it was just a waste of money
> YR just makes it upfront and obvious she does not like him..(at least in the drama)
...and also in the game, when they were about to enter Liu's room.