The enemies are on layer 7 with Overlay active. Overlay puts layer 2 between layers 6 and 7, but it also makes layer 7 stop interacting with the other layers. You'll see the fish and bird blockers surrounding them because they ignore the walls on layer 3. Another key point to note is Shift A will supersede Shift B when they are stacked, but only if the player has enough coins. I use this to decide whether to add damage or to kill.

I've developed a much better system already, one that doesn't rely on falling. It's so close to what I think Salmoneous is after, I don't want to release it without his consent. I'd hate to spoil his level before it's even made.

watch out pumpkinbot the police are coming take down your tilesets

edit:
very nice are these for i dont even I want to see screenshots.

I really like that tiny house in the last tileset. It's a pity it isn't finished.

There's some really nice stuff here Pumpkinbot. Knytt's Edge looks professional. Some pieces in Aperture are superb. It's too bad you're not making anything with them.

Thanks for making this. It got me inspired to use some "unconventional" tilesets in a future potential level. Kudos! 

This level made me realize just how much I didn't understand and was limited by my own narrow thinking when using a lot of the default tilesets. It's both humbling and enlightening at the same time, like a wiser person solving a puzzle for you.