[Jompalaya]

I noticed that every time i lower my defense closer to 540, my other stats, parry/block/dodge goes down. Is this right?

[Spazlord]

1 defense rating grants 0.04% to each of dodge, parry, block and miss, so yes, if you lower your defense, you will lower each of these stats.

For this reason, it's not bad going over 540 defense. Straight dodge will give you more avoidance, but defense only gives slightly less, and because it adds a little to each stat, you don't suffer as much diminishing returns.

[Martie]

Source: Spazlord 1 defense rating grants 0.04% to each of dodge, parry, block and miss, so yes, if you lower your defense, you will lower each of these stats.

That's 1 defense skill, not rating.

And this is exactly why it's not (and should not be referred to as) a defense cap. More defense is good. It gives you dodge, parry and be-missed chance, and for some classes block as well.
Defense is one of the better stats to stack, especially for paladins and warriors. It's pure avoidance strength is close to that of dodge rating, and it gives you block as an additional bonus.