Glad you're enjoying the game! :)
Indeed, you still have to kill the Kraken to progress. (I would be very interested to know how you glitched the door, if you remember the steps ;) )
When you say the combat challenge in the Lunar Temple is too tough, do you mean this room?
If you didn't already, I encourage you to complete the graveyard ghost's quest to get a better sword. It will help a lot for the Kraken and the incoming challenges.
Good luck! :)