This level is the finale of the episode. You begin on a wide ledge overlooking a large expanse of lava well below. Behind you is a large door you need to open; across the lava is a plateau and a pillar of dark metal.
After dispatching the enemies (use your Dragon Claw, if you have the ammo, to get rid of the crowd of Undead Warrior ghosts on the plateau) jump down to the right-most of the platforms, then follow the platforms right-to-left and collect the Quartz Flasks. By going right to left you'll cut down on time spent running around in the lava. Go to the left (west) side of the plateau, where there's a stairway leading up. Hit the switch on the pillar to open the door near where you started the level. Get the Wings of Wrath nearby, but save them. Instead, take the teleporter, which goes back to the door.
There's a large room inside, plus two big rooms on either side, textured in red, with windows looking into them. Be extremely careful in here: enemies in the two side rooms will fire at you, and can hit those floating spores and cause them to chain-react. On the flip side, you can take advantage of the spores to clear out the enemies. Whenever you set them off, leave the room immediately; it's easy to get caught by the gas clouds. Whenever the spores are destroyed, more will spawn.
Your goal in here is to get to the opposite end of the room. Hit the switch on the right to open another big door that leads to a ledge overlooking a second, huge, lava-covered area. When you step out on the ledge, the windows inside the room will convert to doorways, allowing the enemies in the side rooms to get out. At this point you can set off the spores and efficiently kill off the enemies.
Before you continue, look in the four corners of the room for sections of wall that are slightly lighter than the rest. They're between the torches. These are hidden doors, with useful items inside. Also, there's ammo and health inside the red-textured side rooms.
Iron Liches and baddies
When you're finished in here, go out to the ledge and take a look. Here, you'll have your first encounter with a new enemy: the Iron Lich. These look like giant hovering silver helmets and fire a variety of weapons. Their weapons-fire is extremely damaging, but is easy to sidestep. Their most irritating behavior by far is the tornadoes they set off, which follow you and throw you around, but they fizzle out after a while. Iron Liches become fairly common in later episodes, but serve as a minor boss enemy here. They take a fair amount of firepower to destroy, but aren't too difficult. One trick is to push a bunch of spores over the ledge, then set them off, which will cause the Iron Liches heavy damage if it doesn't kill them outright. (If you do this, back up right away after setting them off, even if you're up on the ledge: the gas clouds will still impact you. The game isn't considering differences in height, only lateral distance.) If you saved the Wings of Wrath, use them now: there are many items and lots of ammo throughout the area, and you can avoid the lava while collecting them.
The Iron Liches are actually the easy part. When they're destroyed, the entrance to a big cave at the far end of the area opens, and you'll have a fight with an enormous horde of Disciples of D'Sparil and ghostly Golems. But there's also a massive quantity of Claw Orbs, Ethereal Arrows and Quartz Flasks inside the cave. There's another set of Wings of Wrath in the doorway. When you're done, the level exit is at the far end of the cave. The floor in here is all lava, so you'll want to head to the exit while your Wings are still active.
Go up to the nook at the far end of the cave (in front of it is a lift, if the Wings of Wrath have run out) and hit the exit switch. You have now completed the episode. The ending dialogue assumes you'll be playing the second episode, Hell's Maw, next. The "unfriendly world" the dialogue alludes to is actually made up of some of the best and most enjoyable levels of the game.