los is a regular adjective meaning off (in the sense of unleashed or detached). The basic idiomatic expression using los is the following sentence:
Etwas ist los.
Something is unleashed/moving (figuratively: going on).
los does not become an adverb here as the sentence is simply assigning the attribute los to the subject etwas. los is an adjective used predicatively. Unless used as a poetical synonym for to exist or to live, sein will never imply an adverb.
Your question "Was ist denn hier los?" is asking about the etwas being los, so los is still a predicative adjective. There are several positions where the location hier might be inserted:
- Was ist denn hier los?
- Was ist hier denn los?
- Was ist denn los hier? (rather offensive)
Note that (depending on pronunciation, though), this is rather a rhetorical question. If the speaker is not addressing a specific person and emphasizing the word hier in sentence 1 or 2, they are likely expressing outrage about the situation they just encountered. Besides, variant 3 is usually used to eagerly ask for silence or when criticizing somebody in a rough way.
By the way, there are a few more important idioms arising from modifying the word order:
Hier ist (vielleicht) etwas los!
Wow, there is quite something going on here!
Ist hier etwas los?
Is something wrong/going on here? or Is it fun here?
(Irgend)etwas ist hier los.
Something is wrong here [but I don't yet know what it is].
Actually, we are still not finished here. This is one of the most versatile and "pronunciation-sensitive" expressions in the German language.