-Happy Happy is Blue
-Boy Meets Girl
|Item: Cookie (1/32)
|Item: PSI Caramel (1/128)
|Item: Cookie (1/1)
You'll notice that the entire town is painted blue and that the residents are all acting strangely. Time to get to the bottom of this! If you donate to the lady, she will give you a postcard. If you do not, she will follow you around (creepy)! The first thing you want to do when you arrive is buy a Sandlot Bat and equip it. It might be a good idea to pick up some Croissants as well. Head to the house by the blue cow, which acts as a hotel, and rest up. Save before heading on.
If you knock on the door of the red house, you'll seem some odd text come up. That's a Mr. Saturn, many of whom you will meet later in the game.
Ignore the cave to the east and head through the small cave to the north to reach the house you saw in Peaceful Rest Valley. Inside this house you'll find Paula, who is locked in a cage. She'll give you the Franklin Badge which you should keep in your inventory for now. This item will reflect all electrical attacks back at the enemy, preventing any damage to you and damaging them instead. It is a very useful item, so don't ever get rid of it.
To Save Paula
Head back to the small town and enter the large building in the center. Here you will find a ton of Happy Happyists in a maze-like pattern. Work your way through by talking to the really fast moving cultists to make them move. You will be required to fight a few of them. Make sure to get the Croissant and Skip Sandwich on the way (if you do not, you can always get them later).
Head upstairs and you'll find Mr. Carpainter and a statue that you should recognize if you visited Liar X. Aggerate in the beginning of the game. Without the Franklin Badge, you will be mooooved next to the blue cow within the village. However, the Franklin Badge will repel the lightning, and allow you to enter combat.
Mr. Carpainter will give you the key to Paula's cell, so head back to the cottage and free her. She will join your party and bring along a Teddy Bear to help out. Unfortunately, Paula is very weak at only level 1, so she'll need a lot of training before she can really be of use to you. Buy her a Fry Pan, Copper Bracelet, and Ribbon before moving on to the next "Your Sanctuary" location.
Happy Happy Village will also be free from the cultists, and becomes a free rest point for your characters. However, the self-service store will go out of business due to massive theft.