I found out you can't use pills in the traveling npc fights. King, i game mailed you the error message. In addition to this error there are a few things that need to change on the unconscious text.
Double K/O:
Looks like this fight has ended in a draw...
The knockout message is fine.
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You are currently in your village hospital, you cannot travel.
This isn't actually true because if you hit the sleep hyperlink it tells me that...
You must be in your village to go to sleep.
And when you wait around long enough to regen your health you wake up in the woods where you got knocked out.
Personally i wish it had sent me back to town. I don't like the traveling gui as it takes me several minutes to travel from my town to the jutsu temple clicking the south, then the execute button over and over again.