I might have the name of the encounter location wrong, it's the one where a hero suffers 2 wounds (ignoring armor) when they place an order.

Does the damage happen when the hero has the token on him or before? We played it that it damged him after, which means that a dodge is the only order a hero wouldn't lose.

For example: Hero declares ready action, attacks a monster, then puts a guard order on himself. He suffers 2 wounds, then loses the guard order (suffered damage).

Is that correct?

I don't think that is the way its intended to be played. We've always played it that they basically need to spend two wounds to place an order on that map.

Could be wrong though.

Unless the wording is they suffer two wounds AFTER placing an order, I wouldn't remove other types of orders. I'm thinking it says they lose two wounds WHEN they place an order, which would mean the two things resolve at the same time. Much like beginning of turn stuff, I would think you could decide the order in which they resolve. You don't have an order readied until after the order is placed, so I would once again think that you could still aim, guard or rest, just at the cost of two wounds.