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So I'm loving this game, but for some reason I can't find the key in the city world, which is weird because it's so small. I watched the partial walkthrough that Strattisfaction posted below, but where for them the first key simply showed up after hitting "kill" I can't get it no matter what. Is the secret that you have to be holding a heart to make it through? 

Thanks for playing! The city key is a bit obtuse. Spoilers below:

You have to run into every spirit in the city. The last one will drop the key.

Awesome, thanks!