I just installed this game and played through to the part mentioned and have the same issue.
Thanks for your report, I'll be looking into it this weekend. Can you confirm that the .zip file you downloaded is name "LONG_LIVE_THE_AXE.zip" (with underscores, and not spaces)?
I did not download a zip, I am using the itch client to manage the files. The folder the game is in does have spaces though. Itch says it is "game 14396, version #744223".
Ah okay. It seems like the itch client unfortunately didn't play nice with the initial post-launch updates. I'm currently looking into how to solve the issue within the app, in the meantime if you can download the updated files manually from the game page if you want a version without this bug. Sorry for the late reply+inconvenience, and thanks for bringing this issue to my attention.