Personally, for any 2D RPG game I'd drop sprites, use paste image instead and it's much easier to Z-sort because you have total control over the drawing order. For example, drawing a map, then sorting and drawing the items and characters is how I'd do it - I'd also draw the map to a hidden bitmap then copy it before pasting the characters and items - that way you only need to draw the map when scrolling - stuff that the character can go behind should be handled as items.
I have a little 2D RPG demo (map editing, item editing, z-sorting, player control, player jumping, sliding collision, screen scrolling, and even location switching for entering buildings). If you like I'll dig out the link for you, it's geared up to resemble Zelda style RPG's.
Van-B

The nature of Monkey was irrepressible!.