You can get your main character up to Level 5 before moving on if you take the pirates solo (or with just the Cleric for his curing ability). Shoot, back-up; Shoot, back-up. Get better equipment with the gold. Shoot, back-up. Hide behind the local reptile Army (but don't shoot at any by mistake). Shoot, back-up. Get better equipment.
Try to get the pirates to follow you along the shore. The shoreline has some areas that the Pirates try to cross but can't because of the water depth. Then you can shoot and not back-up. Try to get larger groups to cross the black areas where hot stone hits. Free money but avoid getting hit your self. Keep the fountain that can restore points in view.
If they get too close, run and let the Reptiles handle it.
And yes, the respawning does end--- just around Level 5 for you main character.

macAilpin mostly covered it. Get bows, use bows. Don't try to fight them in melee. I don't remember if the waves actually have a stopping point. They are a good source for early exp and gold, just don't try to go toe-to-toe with them when you first start out. The lizardmen also keep respawning (if at a slightly slower pace).

Beware the scorched areas on the ground; those are where Meteor Shower spells periodically land. Those will happily kill whatever is on the spot when the spell lands, whether you, pirates, or lizardmen. I suspect you don't get exp for the kills.

Ultimately, you aren't meant to try to kill all the waves of pirates (or the random pirate captains standing on boats way out to sea). When you are done in town, and you've killed all the pirates you feel like killing right now, just move past the spawn points. Go ahead and loot chests, grab stuff on the ground, visit houses, and the other usual things. If some spawned pirates chase you, keep going until you are away from the spawning areas and deal with the chasers then (so reinforcements don't keep cropping up). Your starting main-line quest is to get off the islands, not kill all the pirates. If you are interested, then feel free grind on the respawning pirates, using the fountain, temple, and/or resting to heal as needed.

It is urgent in roughly the same way that hurrying to the North Crater to stop Sephiroth was urgent.

Oh, feel free to loot the bodies of the lizardmen, too. ;)

One more thing: from what I remember, the first town has a fountain that will boost a certain stat (I'm thinking Luck) if it is low (<25) and can be used without limit. Therefore, using that stat as a dump stat is a good idea, as you can easily boost it to a decent level right away.

Yes I found it (it's <16 actually), but by that time it was too much bother to restart the whole game and dump the few points from luck. I doubt it will matter that much in the long run.

The Pirates do stop respawning. I wanted to see how many levels the game would allow me on the Island. Around level 5 and the Boats lay silent. Those Level 50 Captains are still there and deadly.
If you don't want to see the boats respawn, kill all the Pirates but one. The boats don't respawn unless all of the previous wave is killed. You can walk past one pirate and get other things on the island done without risking having to return through a mob of them. Like MM6 and MM7, the characters do not fight until you go into their area.

Wow! I actually started this in July. Where has all the time gone.

Granted August was rather busy, but somehow I just couldn't get attached to this game. I'd play for an hour or two and then just leave it for a week or 2 while I play another game or am just busy with work.

Anyway, I finally picked it up this weekand this time at last set the ball rolling. Did lots of exploring, cleared some dungeons (these dragons are overpowered...) and am really enjoying it now.

Either way, am at the stage where I have to form an alliance. Without giving spoilers, could you please advice whether this is like the time you had to pick sides at MM7, where whom you join affects how the game progresses later and the ending? Or is there a "good" option where you can bring peace even to the factions at war and bring all 5 to the alliance?

You need to make peace with 3 out of 5 factions. Dragons and Dragon Hunters are mutually exclusive as are Necromancers and Priests. Make sure you complete all quests of those factions before doing alliance-related quest. Choosing sides doesn't affect much except making other side hostile to you (and possibly denying you their quests, not sure about that, but better be safe than sorry).

Sarisio pretty much nailed it. The dragons and dragon hunters are in engaged in a war of annihilation, and the necromancers and sun priests are likewise trying to wipe each other out. For each pair, whichever side you choose will remain friendly (though they'll still turn hostile (as usual) if you enter a restricted area), while the opposing side will turn hostile for the rest of the game. Any creatures aligned with the opposing side will be hostile, though you can still go into any of that faction's buildings/dwellings like usual (for example, you don't lose access to the class promoters for choosing against their faction). One exception: all of the Dragon Slayer shops in Garrote Gorge will be closed for the rest of the game if you choose the dragons; personally, I consider this a minor thing, since they don't have the high tier gear anyway. I believe that opposing the necromancers does NOT shut down the Shadowspire shops in a similar fashion; I haven't tried it in a long time, but the necromancers have high tier shops (including the high level cap on their training hall) so I'm pretty sure they don't close down. You'd need to wipe out the guards to make walking around town safe, but that shouldn't be much of a problem.

I think the dragon/dragon hunter side quests (dragonbane flowers, killing all creatures) will shut down for whichever side you oppose, so do complete those first. The necromancer quests don't shut down. I don't remember if any extra priest quests exist at all.

If you choose the priests, then there is a necromancer you won't be able to recruit. If you choose the necromancers, there is a priest you won't be able to recruit. If you choose dragons, there is a knight you won't be able to recruit. You can recruit all of the dragons that are available, regardless of your faction choice. In each case, the guy that won't join you will say something to the effect that he's busy helping his side against their opposition, so he can't go adventuring with you. None of these characters have anything unique except for being a level 50 (I think) version of their upgraded class (ex. the necromancer is a level 50 Lich).

Before you make your final choice you should take the time to check out the cut scenes that play when you ally with each faction; they are all pretty neat. Note that there is a required party member in order to complete the Necromancer/Priest war; similar to the required troll from earlier, you can boot the guy after you complete the relevant quest.

Sadly, except for the "turning hostile" thing, your choice doesn't affect the game much in the long term. There are a few cosmetic things, but that's it.

Thanks both.

I think I'll delay the choice as much as possible.

Funny, but after destroying the transformer, all the remaining Necromancers became friendly again. Sandro's door is locked, and the treasure rooms are open, but everyone else is green. Looks like I'll have to attack manually... had I known I'd have killed them first.

Shadowspire remains friendly. Always.

Really? Weird. I remember having to fight my way back out (or town portal out) after destroying the generator. Sounds like a bug.

I suppose I could be wrong about the townsfolk of Shadowspire turning on you, but the guards inside the castle should still be out for your blood. Were you invisible when you did it, by any chance?

No. Not invisible or anything. It does look like a bug. When I attack them manually, only the ones near me turn red. The ones too far away remain green. And extra vampires don't appear.

I think I'll reload and try again. Don't like bugs.

Yes, it's a bug, and I can reproduce it.

If I save the game in the skeleton transformer area after killing all the skeleton bowmen, and then reload it, the door would be closed and all enemies turn to green.

Not sure if it happens if you save under particular conditions or what, but I don't have time to experiment more. Thankfully I created several saves this time, so I'll just reload the one before angering them.