Yes, the back row. If I recall, in the menu screen, if you press left or , it should bring up a small box at the top saying "order/row", with the hand on a character. If you press "A", the the character's portrait will move to the left or right. Right means back row, left means front. Press down to chage other character's positions.

Chances are, Tentacle will still kill Banon, so the best thing to do is to attack with a Blitz, Auto-Crossbow, and Fire, and hope for the best. Ultros tends to react violently whenever he talks, often with Tentacle. Also don't bother curing darkness; it doesn't affect the characters in any way.

If you are lucky, you shoud be able to kill Ultros from level 6 or higher. It doesn't matter if anyone else dies, as long as Banon doesn't die (who can't get revived anyways, so don't argue). Shouldn't be TOO difficult, even if you have level 7 characters with all 4 in the front row. (Although no one told me to power level when I played it...)