Someone needs to write up an actual text story thing for this, with paragraphs and stuff, outlining how the story is presented in the game and the various things the player has to do to beat the game in order. It's confusing reading multiple pages of unordered IRC logs.
Also, about the luigihann selling skins as armor thing, maybe luigihann's skin shop appears to be just a regular item shop from the outside, and you can go there and buy items of average-below average value. But as part of a side-quest thing, someone lets you in on the secret that the shop actually sells illegal skins as well(perhaps as a reward for fixing my glasses?), and they tell the player a "password", which you can tell to the person working at the shop and he'll let you go behind the shop where you can meet luigihann and buy his skins. So the item shop itself is just like cover for the fact that luigihann sells illegal skins.
Reason for the skins being illegal would be that they give the wearer power, which is why whoever it is that enslaved the place banned them, because he doesn't want to risk being overthrown by someone in power.
I don't really play RPGs too much, so...