This isn't all that bad for a first level, and I'm glad you elected to release a demo for us so you could get feedback.
That said, I do have a lot of feedback for you.
Firstly, I find the level design to be a bit messy. All the screens are a tad overcrowded, and the lay of the land makes very little sense. For instance, the main area consists of a weird combination of caves hills and lakes that is sandwiched into layers. I'm really not sure what to make of this place and it's too easy for me to get lost.
In addition to that, you use a lot of tiles as main layer floor tiles that really shouldn't be. Strictly speaking, it should be obvious to tell which platforms you can step on and which you can't. (Unless you are deliberately trying to fool the player) For example, the Flower Garden tileset you used in the first area has a block of black-outline land tiles that are really the only things that should be walked on. The rest is background decoration. The same goes for the NotDesert tileset.
Similarly, if you use platforms that have the same type of outline (like the Dark Mountain Lake tileset), they should either both be walkable, or neither should be. Doing otherwise confuses the player and could cause frustration in certain challenges.
If you really want this level to go places, I suggest you get some custom tilesets done. If you can't do them yourself, find some in
this thread or get someone to make some for you. Additionally, it helps to use music that isn't from the standard Nifflas levels. As you might have noticed by now, Knytt Stories takes .ogg files for its levels. If you can't convert them yourself, ask one of us, and we will do it granted it doesn't break any copyright laws to do so.
On a gameplay standpoint, I was never quite sure where I was going, and kind of just ran all over the map to get the things I needed. I would highly recommend you restructure your level from the ground up so that places are more readily identifiable. By that, I mean that you specifically know which way to go to get to the sages and you know where the rift is from the start. Also, when I talked to the sage elder, I didn't actually realize that I had gotten the hologram powerup from (him?) until I checked my inventory. I actually wasted a good deal of time trying to track down that powerup cause I didn't know I had it already.
I suppose that's all that could be said for now. If you have any more questions, don't hesitate to ask. I'll be here, as will others.