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Incidentally, this game appears to have a TVtropes page. I haven't dared to take a look, I'd probably have an aneurysm looking at the praise.
Leaving the funhouse, we find Kanon alive and well. Turns out the masked woman saved him, but was unable to save his Salamence. Dumbass tried to use a dragon on a fairy.
Hmmm, I wonder where Madame X got her Salamence from.
We snap him out of the loss of his closest partner by telling him the object of his lust, the fire of his loins is in danger. That worked.