From the starting pool, use the Hillbilly's breath-holding to swim through the passage to the other side of the wall.
From here, light a stick of dynamite to blow the rubble and allow the rest of your party to enter.
Proceed down the ledges to the carnival proper. You'll find the Hillbilly's crush down here: the two-legged lady. You'll need to win a prize for her to continue. Just to the left of her you'll find a prize booth that needs five tickets.
The first ticket is just past the booth. Steal it from the child and deposit it in the prize booth.
Continue left to see a rope and a strength test. Continue past both of these to find a dunking booth. Hop a character on top, and use another to smack the target and drop the other into the water. This will net you another ticket for the prize booth.
After being dunked, swim around the left passage and climb the ladder to find a Cave Painting.
Now climb the rope near the strength test. Head to the left and follow the passage. Don't drop into the Wheel of Misfortune tent area yet, but remember it for later.
Climb up the far left of the passage to find the generator truck. Pick up the wrench and wait by the truck: you'll be using both quite a bit.
Use another party member to climb the rope near the strength test. This time, head right. You'll pass the Guess Your Weight game and the entrance to Magnifico's tent. We'll visit these soon, so remember them.
Keep climbing, even past the fortune teller Xavetar. We'll revisit this spot too.
Once you've reached the top level, you'll find the Man of Ordinary strength by the ferris wheel. Pick up the barbell next to him.
With barbell in hand, head to Magnifico's tent. After he makes the cupcake disappear, place the barbell on his table. His act will make the barbell invisible, so pick it up off the table again (you won't see it, but it's there).
Head to the Guess Your Weight game and hit the button. With the invisible barbell in your hand, the barker will guess the wrong weight, netting you another ticket.
Now head back to the top level. This time, hop onto the ferris wheel. You'll spot a Cave Painting as you ride.
Across from the Cave Painting is a fuse cell. Before you remove it, have your party member near the generator truck use the wrench on it. This will shut of power temporarily, making it safe to remove the cell.
Drop down to the ground and head left from the ferris wheel. Climb the pole near the group of carnies and insert the cell at the top. Once again, have your party member disable power with the generator truck first. This new cell placement will activate a display below, clearing the crowd.
With the crowd cleared, you can grab the sledgehammer they were blocking. Use this on the strength test for another ticket.
Return to the power cell and remove it (with power disabled via the generator truck, of course). This time, take the cell to Xavetar. After being powered up, talk to him. His sphere will glow a certain color - remember it!
You can finally enter the Wheel of Misfortune area now. Set the color picker to whatever color Xavetar's sphere displayed, and spin the wheel. The colors will match, giving you your fifth ticket.
With all tickets turned in, the Hillbilly can give the prize to his lady. Approach her to find her with the Man of Ordinary strength, which angers the Hillbilly.
There's a new prize in the booth now, and it only takes one ticket. That one ticket can be stolen from the kid again. Do so to get the new prize - a lighter.
Head back to the dunking booth, and make sure the Hillbilly is carrying the wrench. Send him into the water, and use his breath-holding ability to swim through the long passage to the right.
Use the wrench on the valve down here to turn off the water hose above. While it's off, have another party member use the lighter on the hay bales to the right of the prize booth.
Step back to see your handiwork, and return to the hay bales. They'll explode, clearing your way out of this level.