Upon removing them, he enters the Avatar state. He is in his true, final form, and no one dares go up against such a terrifying individual.These are all excellent theories. I'd like to propose the idea that he removes his sunglasses. The ruffians are so intimidated by his gaze that they scatter immediately. Alternatively, his sunglasses are his power limiter. Removing them allows him to fight at full strength; mere bugs are no match.
I think I saw a comic somewhere of Wilbur complaining about having to try not to get poisoned when giving the player CPR (since the player got stung by a tarantula).I'm not sure how he pulls an island rep from danger but afterwards I think there might be some beak-to-mouth resuscitation involved.