Add at the end of PokeBattle_Battle:
### Wild pokemon drops item if defeated
  def pbDropItem (i)
    if rand(100)>50 && @battlers[i].item!=0 && !@opponent
      $PokemonBag.pbStoreItem(@battlers[i].item)
      pbDisplay(_INTL("{1} picked up {2} from the pokemon!", $Trainer.name, PBItems.getName(@battlers[i].item)))
      end
  end
end

Put this in the pbGainExp section in PokeBattle_Battle:
                    # Finding all moves learned at this level
                    movelist=thispoke.getMoveList
                    for k in movelist
                      if k[0]==thispoke.level   # Learned a new move
                        pbLearnMove(j,k[1])
                      end
                    end
                  end
                end
              end
            end
          end
        end
        pbDropItem (i)
        # Now clear the participants array
        @battlers[i].participants=[]
      end
    end
  end