A very few maps don't have the highlighting active, but yeah. Doggo now revives after getting killed, like any other party member. (2-3 situations don't have a "fight over" step and Doggo remains "dead" until you have a fight that does have that step.)Giving the game another go. If you head west to the port town you can buy a dog. The dog does help in combat a little, But it's best use is it causes all items on the map that can be picked up to get highlighted .. I think. At least I'm pretty sure it was the dog that did that. Really helps in making sure you don't miss stuff as pickable items can be hard to distinguish from the background without it.
In case you didn't know and didn't notice there's a potions/magic items shop near the fisherman guy in Greyport and an inn (the Moist Maiden) a bit further west. You can now enter the Inner City which has some more shops & stalls, some aren't available immediately.