Both that i mentioned above is possible, just need a lot of work.
And there might even be a 3rd way around depending on the details you are willing to give.
As far as i can tell from reading all the above, you want to battle your friend on the same PC.
But you didn't tell us whether your friend and you should be able to battle the monsters to level up or not.
Or simply just a direct battle at the start of the game.
If you just want a direct battle,
then have your friend share your party while applying states to his actors (for flagging purpose)
and do a small script snippet to alter the "target" based on states should do the trick.
As far as i can tell, you can even go as far as having both of you playing the game on a different instance while saving the certain player's parameters to a global save file should allow both of you do the level ups and such. But the battle part requires you to "load" the global file to load the parameters to his/your characters.
Not really practical if you intend to release the game to others, but if it's just for battle fun with you and your friend only. Then it's probably worth doing in your point of view. But i doubt most script writers will spend that much time for something this uncommon.
That's one reason you find all your facebook/flash online game's opponent are actually NPC, even if the parameters are gained by other player playing the game.
Edit:
Just realise you don't even need a script if you only wish to battle your friend on the start of the game.
Simply setup your skills to attack friends and not foe, and in the troop event, check if actor A,B,C hp = 0 and ends the game when your actors/his are wipe out. Well, since he's beside you/on the phone, you don't even need that. Just stop playing and call for winner when his/your actors are wipe out.
For AoE attacks, simply use the damage
formula to do 0 damage if target id = caster's party member's id.
Remember to have a dummy enemy behind that does nothing with nothing in its AI.
To add more than 4 battlers to your party,
go to Game_Party in your script editor:
look for this line: def max_battle_members
change the numbers from 4 to 8 or even 10 if you like.