My submission for the challenge.

Pretty sure there's a number of issues I haven't yet found and there's a lot that needs improvement but the game is playable and winnable. 

Quest for the Ban Hammer

Objective

Explore the Lounge basement for the Ban Hammer and return with it to the Lounge. Snail enemies rush the player throwing him into the air potentially knocking him into the water to his death. Use crystals to light your way and mark areas that you have explored.

Objective is described by conversing with character in the Lounge level.

Controls:

• Arrow Keys - Move
• Q - Jump
• W - Attack (only effective with weapon)
• Number keys - Interact / Pick up item
• I - Inventory
• D - Drop
• Esc - Menu / Pause

Stationary Obstacles

• Darkness
• Water

Items

• Various weapons (Ban Hammer, Long Sword, and Club give best range or effectiveness while Dagger has the lowest).
• Backpack (equip to carry multiple items)
• Light Crystals (3 kinds with different levels of illumination)
• Glasses (Illuminate the entire play area when equipped)
• Various clothing that is just decorative.
• A few miscellaneous objects placed in levels for decoration.
• Pixels (credit item drop from enemies with no way to spend or use)

Gamedev.net Reference / Easter Egg

• GD.net logo used on sign to return to Lounge level.
• Some subtle content references.

Known Bugs / Issues

• The Equipment / Inventory interface is a little quirky. Attempts to equip a weapon that's already in the PC's hand has been known to cause a crash.
• Drops by enemies are leaving a solid, invisible, collidable space. This space can be jumped over.
• Occasional crash that is difficult to reproduce which seems related to the collidable space left from enemy drops.
• Debug functionality needs to be disabled.
• Dagger and Short Sword weapons are very difficult to fight with. Not a bug as much as a design issue.
• Can only hold one item in hands at a time leaving no way to make use of a light and weapon at the same time. Backpack can be used to carry other stuff.

This is probably the hardest of all the entries I've played!  

I was able to find the Ban Hammer!!!

I found it a bit difficult because it was so easy to get knocked off, and sometimes you would jump on a platform but still die, ect... After playing for over 2 hours ? I just did my "speed run approach" instead of attacking, gathering, and marking my spots. I grabbed the yellow crystal for vision, nothing else... Then jumped like a mad man through the whole level searching out everything. I found all the glasses locations so I equipped it and dumped the yellow crystal as I had full vision now. Then I found the ban hammer and returned back home. Took under 5 minutes with a clean run once I knew where to go.

Great job!  

On my first attempt, I managed to somehow get stuck on that desk in the top right corner, between the down-pointing wing and the NPC standing there. Could move left/right sporadically, but could not move down. Also, it seems like there are other invisible obstacles even when you haven't just killed something. Otherwise, I like it.

I didn't make it very far, it crashed a few times on me.

The jumping was fun, but I also killed myself that way a few times.

I think the music and sound effects matched the mood of the environment very well.

I like it a lot.