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You should now have all four parts of the pygmy gear. Enter the house right from the village to turn into a pygmy. Go to the blacksmith, he'll tell you that his fire urn is stolen by one of the monsters.
Enter the volcano and make your way to the room with the door and the big snakes. Stand on the smallest platform in this room. After a few seconds some blocks will change into gray blocks. Shatter them and go fight the tyrant dragon. Power magic will help you.