I got it several times today.
My smilie is the victim of this. I never escaped a battle, because I was losing, even when the server connection failed, I reconnect and finish the battle.
An other problem is that when a battle is finished and I challange an other player, I get the message that I am still in a fight, the last round of the previous fight then continues. Sometimes I even get the text "round 5" 0_o
If you got "battle timeout" without starting a battle, it won't count on your smiley.
About the other problem: it look like you are using the java version, is it correct?
I used the java version only a few times, but I normaly play in Flash. I only got the last problem twice (in Flash). Never got problems using Java, but the Flash version is easier to use...
I wonder why my smiley is so bad....I never used the white flag or disconnected intentionaly. However, my wireless internet at home could be the cause of the server disconnections and/or me escaping battles unwillingly.
The white flag is okay to use: you'll get a battle points penalty but it's considered "fair use"
Your internet connexion is certainly the cause of your smiley face. I believe you know you can rejoin quickly the battle and finish the match.