Overlapping wheels is discouraged very simply because it's dangerous as the OP found out. In a bunch even more so because an incident has the potential to take out just more than the two protagonists when (not if) their wheels touch.
As for drafting, well I'm more than happy to give anyone who latches on my back wheel a tow, after all he's a fellow cyclist and we're all comrades are we not? Besides he might return the favour on the next hill. Two cyclists working together are more efficient than one on his own, and unless you're one of those grim northern England time-triallists that refuse to socialise and should be shunned like recumbent riders
, you should encourage the opportunity to make a new cycling buddy.
Regarding etiquette when passing, a simple call of "Bike Back" should suffice as a warning. Calling out "Passing" is like a red rag to a bull. Don't do it.
BTW, Half wheeling is when one of two cyclists riding alongside rides with his front wheel half a wheel ahead of the other. Also discouraged but for totally different reasons entirely.