That seems like it would work. What happens if you log out unconscious?
I would probably treat it the same as if you were not saved. You would wake up back at your nest in the GV.
If you could log out to freeze the timer, here's what would happen.

I went unconscious and my friends won't be able to bring me food for a long time.
I log out to freeze the timer to buy them the time they need.
I log back in when they have all the food right there at where I went unconscious.
Suddenly I only used like 2 seconds of the timer when it took half an hour to save me.

This could easily be abused and it would basically make the timer useless.
I'm wondering if you would lose all experience gained on that quest after you die, since it was 'all a dream?'
Yes, you would lose some EXP if you died. You would also drop all your items. Items in your "home", which are stowed away, would be safe though.
When you fall into a volcano I find it hard to think of any way you could realistically survive, teleport method or no. We could just make it impossible for some idiot to jump into the volcano.
Hmm...I'm going to say "no". Otherwise we would literally have to make it impossible to die. If you found some sort of instant death:
Having a boulder dropped on you.
Falling into a volcano.
Falling off a cliff.
Eaten by a sharptooth.
Etc.
(Wow, I sound horrible right now

)
You will just skip the countdown phase and restart back at your nest with some lost EXP and the loss of your items.
probably, except if it was all just a dream, why would the NPC's berate you for failing
Good point.

We may need to come up with another plan for that...
What we could do is have the NPC's dialog NOT suggest that you failed the adventure.
For example, if you're playing along and an NPC gives you a task:
"Hey, you seem trustworthy! Would you mind bringing this shiny stone over to my friend over the mountain?"
and you fall off the mountain and die.
When you restart back at your nest, just pretend none of that ever happened EXCEPT...
When you talk to that NPC now, the NPC will give you a different quest first:
"Nice to meet you. Say, I need a favour but it's very important, so would you mind bringing me a really green treestar from atop that nearby tree? I can't reach it."
This quest would earn the trust. Now when you talk to that NPC again, you will get the task:
"Hey, you seem trustworthy! Would you mind bringing this shiny stone over to my friend over the mountain?"
Basically, it would add new tasks to the game. The "Bring me a really green treestar" task would give you basically enough EXP to make up for the EXP that you lost when you died.
The result is:
Dying costs you time but gives you some new experiences so it's not completely and totally annoying to the player..yet it slows down progress through the game so it's still not something you want to do.
You will be able to attempt the task that you died on once you "unlock" it again by doing another task for the NPC first.
How does this sound?