Aka Goblin Trouble Part 1
A little tip before you start, if you want to hit everything, save a lot, cause hitting objects will usually get you killed in some way, it will be funny though (the first time). Don't say I didn't warn ya! ;) Looking on the other hand is safer...
There's a secret room if you go through the fences left from where you start, but that's not needed for now (you'll probably lose some money there too :). Go right and save if you want to, it never hurts. Now go up and look around a bit, you'll find out what happened to everyone. Back down and hit the south fence, it will disappear, but you have to leave and come back to be able to pass. You can make the rocks disappear by punching them. There are 2 rocks that don't go away, one is a special rock. He'll reveal another secret in the first secret room. Punch the south wall in the room (more south-west actually) and enter. A rock there will give you a sword if you talk to it (could have been removed). Back to the rock area and punch your way down. You can't enter the house, so punch the south fence and go down. There's are some throwings knives (about a million) here, take them if you want to. Punch the west fence for another secret (this one was in the readme.txt). In this secret room you will find Drink, Dink's long lost brother (well, he was never really lost, he just never existed), ask him about a mighty weapon, and you'll get the Power Bow. Two screens to the right and you'll see a knight. Talk to him and he'll tell you to punch the south fence, do so and go south. Punch the wall south of the knight here and talk to him, he'll give you the flaming axe magic. Go up and start torching those trees. (Side note: Don't burn the tree on the start screen, it'll crash your game) Read the note to find out what happened to the king.
One right and you'll arrive in the destroyed town. Go op once and talk to the man, he'll tell you to burn down the tree, do so. Enter the secret passageway and punch the statue heads. Read the sign and the d-mod is over!