This might be a silly question... but he deals 1 penetrating damage to each opposing character within 2 squares... the question is... withing two squares of WHOM: Surtur himself, or the attacked character.

Also, not-that-silly-question: if the character that triggered the retaliation succeed at shapechange, does the "after resolutions" part trigger???

Surtur.

Yes. The 1 penetrating damage is not dependent on him hitting or there even being an attack made. And since it does not target (no LoF, no attack and it does not say that it targets) Shape Change does not affect on it.

Thanx for your help!!! :-)