I think power leveling in any form is not ok, whether collusion exists or not.
so even if player B is unaware player A has unequipped and is trying to knock themselves out, I am not ok with that. player A can leave his weapon and gear equipped and try to knock themselves out; thats fine. people dueling members of their sister towns though? that is outright cheating in my opinion. and it makes those of us who have achieved our dueling ranks through actual fair fights against competetive enemies scoff at those who have used power leveling to gain rank.
regarding weaponless dueling, it is a tough thing to resolve. I would be all for an outright ban on weaponless dueling (enforced by the game); but then, as someone mentioned, people would just unequip their weapons to avoid being dueled. I think some logic instead:
duel can't happen if both players have no weapons equipped
duel can't happen if challenger has no weapons equipped
this would leave one other scenario, the case where a player unequips his weapon and then tells his friend to swoop in for free XP. but the admins still exist, and could likely notice if someone is challenging an unarmed player over and over again.