Your arenas and dungeons are going to have to be pretty basic with almost no scenery, otherwise you're still going to have to event a million bricks.
This also rules out having any water as you can't onPlayerTouch water.
Instead of events you should be making a proper mod to handle the entering/leaving of PVP zones, dungeons, etc. and then doing something like the "Drop Item On Death" code.
Key word is "you", as this is your RPG.