Well, it's been a while, but have a few updates I guess:
These are used for lava and forest levels later in the game. Both are based on GFX sets released by PROX on Super Mario Bros X.org.
Meanwhile this is used for a canyon style level. Background undecided.
Red Switch Palace
Getting 10 coins or more kills you. As you can guess, each Switch Palace involves a basic 'gimmick', with the level design built around it.
Yellow Switch Palaces
Blocks affect Mario behaviour when enemies touch them (making him jump, spin jump, move in certain directions, etc)
Others disable jumping for the level, and make it so you can only go in a single direction.
As for what's going on? Honestly, it's been on hiatus a bit, since I've been focusing on stuff like YouTube for a while instead. But I do plan to release demo 2 by the end of the year, and the final version sometime before the heat death of the universe.
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As for Mario's Nightmare Quest? Well, it's currently on Fusion Gameworks, ROM Hacking.net or the GCN at the moment.