The red square is the indicator for the level above you, and if you're on the first floor that would be the exit. I'm pretty sure most dungeons in Arena, if not all, have multiple levels. The entrance to the lower level is indicated by a blue square.
If I were you, I'd go about three to four levels down, search the entire level, and kill everything you see. If you still don't get any message saying you've killed the creature then I don't know what to tell you.
I'd be of more help if I'd play the game once in awhile. Today was the first day I've turned it on in a few months, and it was just to see how well it worked on my Eee PC.