Ooh, this is a neat idea! I'm looking through it in KS+ now, and I can't seem to get how it works. How am I not dying when I touch the enemy?
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.