Items: Couch, Mystery Bag
Upon entering, you'll find Pino. She's quite lost. She mentions a cat monster from her past and wonders about him. You've met the cat. He's the one from the Potato Shrine. Anyway, Pino heads home and you're left to explore the forest.
Start by destroying the two torch stands at the entrance for some coins. Next, drop down the hole that Pino was exploring and pass through into the next area. Wooden spikes will pop through the surface of the ground, preventing you from backtracking. You're now standing at the entrance to a larger area. Ahead, there are trees and vases, as well as a switch and a crate. You can use your newly-acquired Drill Tornado move to demolish the trees without charging your shots, which is handy. You can also break the vases the old-fashioned way. If you want to proceed, you'll have to push the crate over the switch so that it settles into place and allows you access to the next area.
As you follow the path as it winds around to the right, you'll notice a new clearing with several devious acorn-shaped enemies glowering in you4 general direction. They're pretty peaceable until you attack, and then they start hopping around and breathing fire. Obviously, this is not so good if it connects, so don't let it; your Drill Tornado move can handily clear them out in a flash and leave behind a bushel of coins. With them out of the way, you're free to break open more pots in the immediate area, and to head along the path as it winds around through more trees.
When you round the bend this next time, you should see a clearing that appears to be devoid of enemies. Don't be fooled. If you skirt the outer edges, you'll attract the attention of some camouflaged Phantoms (they are easy to see because their heads have white sticks on them that stick out from the surrounding greenery). The trick here is to tackle them one at a time. They also possess junk, so keep that in mind. Start by charging your drill, then getting close enough to one to lure it out and use your charged attack. Finish it off, charge again and then move on to the next Phantom and repeat. There are a total of four, and you want all the junk pieces you can get for when you return to town.
After you've taken out the four Phantoms, destroy the rocks and pillar for coins before moving through the wide black hole and into the next portion of forest. There, you'll see a stream you need to cross. There's a switch on a bit of wooden planking, and a rock nearby. Trees are also in the area, and you can destroy them for the expected coins with charged attacks. Note that if you decide to, you should face away from the stream before letting loose. Otherwise, your drilling rush might take you through the trees, over the bank and into water that will damage your life meter and drill's effectiveness.
Once you've destroyed any debris and gleaned all the coins you can handle, turn your attention to the switch near the bridge. There's nothing to push over it just yet and your weight doesn't do the trick. What you must do is destroy the boulder that blocks your path (make sure that you aim your charge attack so that it carries you through the crumbling rock and onto safe ground, not into the water) and cross over it to the glowing pedestal. When you step on it, a crate falls behind you. Turn around and push that crate back the way you came, until it rests on the switch. This will lower the barrier on the other side of the bridge and allow you to continue through the forest.
Before you do that, you may wish to stay and smash some trees, but that comment comes with a warning: two of the trees in the vicinity will come to life once assaulted. This is bad news because they're capable of inflicting severe damage if their attacks connect. They chuck bombs your way and also snap around so that their tops club the ground where you're standing. Move in quick with brutal attacks to win your paltry bit of coin.
Once you advance down the path, you'll be in a canyon with a mound of dirt that allows you to recharge your weapon. If you fought the trees, you may well need it. Continue past it and rogue acorns will drop down from the trees to attack. There are three or four of them. Don't give them time to breathe fire. Beyond, you'll find a station you can access to restore Parin's health. To its right are some stairs that lead to the lower level of the forest floor.
At the base of those stairs, turn left and follow the bank to find a blue container you can crack open for 4 pieces of junk. Then turn back around and head forward toward the clearing. This will prompt a circular enemy that looks like a rolling blue shield to attack. Use charged attacks but watch for one of its own, a huge ball of aura that occasionally will hurl toward you. Don't let it hit you! You'll have to hit your opponent several times to kill him and he doesn't give up any junk, so once you've hit him with one charged shot you should probably finish things up with a flurry of weaker attacks.
Beyond where the shield accosted you, you'll see a sign that suggests trying targeted attacks. It's saying that because there are some black, regenerating enemies hovering over a wide gap. There's a staircase to the right, as well, but before you descend those you should cross the afore-mentioned gap using enemies as your stepstools. You should remember how to do it from the tutorial in the first dungeon, and even if you can fall you can always climb up and try again. Your reward for reaching the elevated bank on the other side is a MYSTERY BAG that you can have Pamela open back in town (she's the woman with the dog). You find it when you follow a winding trail into a dead-end clearing. It's in a treasure chest that is guarded by a two shielded enemies. Defeat them with charged shots so you can be assured plenty of junk and then open the chest for your prize.
You don't have a moment to savor your new treasure. Enemies will now appear behind you. These guys look like the same weaklings you've been encountering before, but they're not. They breathe fire and ice. Since they won't give up junk when you defeat them, move in with charged shots and then quickly hack them to bits (maybe you can even throw in a whirling attack). Move back down the trail and backtrack to the pedestal that refills your life, if necessary. Then head back to the sign that suggested crossing the gap with targeted attacks. Now you're ready to descend that staircase.
Once you do, there's a wide path you can follow around as it heads gently toward the left. You'll drop down into an area with some pots that appears to be a dead end but isn't. Look along the wall and you'll see spidery cracks, a sure sign that it's time for a charged attack. Go at the wall with your drill and part of it will crumble away, allowing you to hop up and proceed. You'll find a lever at the top, which you can pull to summon two blue Phantoms. They bounce around a lot, so you want to move in quickly with a series of attacks rather than running around trying to charge your weapon. Spinning attacks should work fine, too. When you defeat them, the nearby gate will lower and you'll gain access to the next area.
In this new clearing, peaceful music will begin to play and you'll see a glowing orb hovering over a pedestal. Before heading toward it, break the nearby pillars and the trees to your left and right for some more coins. When that's done, go ahead and advance to the altar to gain the COUCH item. You just beat your first 'real' level. If you've followed this guide closely, you should have an 'S' ranking or better. Go ahead and return to the Monster Village and pass through there to the human town beyond.
When you head down the stairs, make sure that you talk to your grandfather. He'll comment on the medal you're carrying and offer to give you a present in exchange. He offers several items in exchange for medals: Monkey Hat (4 medals), Nightcap (7 medals) and Hair Buns (19 medals). You can give him a medal, but obviously you will need to do some more adventuring before you can collect any rewards.
Just past your grandfather, you'll find Cylinder. He wants to know if you're buying any drill parts. His inventory hasn't changed at all from the last time. About all you'd want is the ALPHA PARTS upgrade. Go ahead and do so. The game then explains that you can use the skill by first using a Guard Dash then rotating the analogue stick in a circle and pressing the 'X' button to attack. In the tutorial, the Guard Dash is executed with the 'Circle' button, rather than the 'Square.' Once you break free of the tutorial mode, the rest of the game will expect you to use the 'Square' button, as normal. Remember that.
Once you've purchased the Alpha Parts item and learned its accompanying 'Forward Slash' skill, make sure that you find Pamela and give her your mystery bag. She'll give you an item in return. For me, it was the ENERGY OIL item. Now return to the Monster Village and from there go to the world map. Now head east to the fork in the path, then south to the ruins. The next level you'll tackle is Nanometer Shrine.