Wow I kinda of disappointed. While the Alchimist Lab/Enchanting Altar can be a fun feature, the main reason for it was to satisfy the players thirst for the "role playing" aspect of the game, so that magic characters fell "magic". But if that is not enough, then we are back to ground zero on that aspect.
It is a great feature! I said that we are also making a WMlike game in Python and it will have both Alchemy and Item Augmentation. It will also have Artifact lab that will play a big role in the game. But it is a fun feature as a filler, not as a main magic outlet, game will 'feel' very incomplete and awkward with just that feature representing magic.
The main problem with combat magic is that it doesn't add to the game if combat is auto-resolved. On the contrary, its makes things less intuitive and confusing. The reason that combat will be auto-resolved is because of how long a turn takes. If the player where to control battles, one turn (a week of time) could take as much as a full hour in real time. So whats the problem with turns taking so long? Well I've have read lots of posts in few threads that crazy linked here. Lots of the discutions are around pregnancy and the children that are born. So if each turn take too long that means that pregnacy will take a really long time in real time. For instance, lets say a full pregnancy cicle takes 40 weeks and the player spends an average of 30 mins per turn. That mean from the time a girl gets pregnant to the time the child is delivered it will take 20 hours of play. That is simply not acceptable. That will make pregnancy useless and since so many people care about that, the game will not appeal to those people.

What games did you play with FF Style type of combat taking that long? It shouldn't take more then 1 - 3 minutes, maybe 5 minutes tops. Or do you mean by battle some sort of exploration/rougelike engine?
This is an example of a battle engine written in Python for RenPy (Alpha v.5 or v.6):
https://www.dropbox.com/s/o4fsd2bphkyztlr/BattleEngine%20Demo-win32.rarFor user guided combat you could simply add something like this and make exploration logical. For example you were talking about 'levels' in Catacombs. You could force player character along with a team of girls to 'clear' a catacomb level first and only then, after defeating level boss(after 5 - 10 fights), could you send normal girls for exploration and item hunting on their own. Also a number of quests given by NPC's in the city that would have to be resolved by player guided combat... Rest? Autocalculate rest of the battles, that way you can insure that player can have some fun fighting but players will also not be FORCED to fight every single turn themselves.
In any case, that is one way you can add combat without ruining the game, similar feature was included in first release of Otherworld and was very well liked. Daisy decided to remove it later since it was to simple and to buggy I guess...
It is important to notice that I'm not making the game for myself. By that I mean that I want the comunity to enjoy the game but also allow then access to the features they would like to have in the current WM but can't becouse its too complicated/time consuming to implement. I'm trying to design a game where it should be easy to add those features. For intance I decided to save the game to a database becouse amoung other things, it will be able to easily track who is the child of who and also, of course, who is the mother of who. In my mind that doesn't really add to the game play, but it does add to the "role playing" aspect, where people can do things like having a mother/daugther threesome and stuff like that.
WM was supposed to have Mother/Daughter code but that was never implemented. I don't think it is a very important feature to a lot of people, but people keep asking if pregnancy will be a part of every damn hentai sim game on every forum so I guess it is important to add this feature. I would prefer to see user guided combat thou... it is what's really missing from every indie game out there and also something that would make an awesome addition to practically every game.
PS: I know that SlaveMaker has combat but it is to simple to be counted as such

PS2: Another thing you can play with if you decide to go with userguided combat are action points, player will have to decide if he wants to spend those interacting with girls/shopping in town or hunting for items in the Catacombs, I think that is a logical step up for next generation version of WM. But on the other hand you wanted to make a faster game oriented around concept of 'purer' simming that I suggest, also a great design. It's always up to programmer in the end to decide.