I liked the concept, but I just have a few little tidbits that could be looked over:
1. All the sprites are really small in comparison to the tileset, perhaps you could enlarge them at some point?
2. The lag is kind of annoying, I mean when I walk in a certain direction, for some reason I can't anymore, and I'd have to move a different direction to be able to go that way again.
3. Attacking is really slow, (for me, and it might be lag again) I mean, I got pwned by two Caterpies almost, (2 hp left) and they hit me like at least 4 times before I even get to hit them. =/
4. I like the concept, it reminds me of Tibia, in fact did you get any ideas from them? (jw)
5. The equipment is really... well, for humans yea? I never seen an egg use a knife xD
Anyway, other than those, I think it's a really good idea, although I have another idea for something to add that I'll PM you later about.