In order to activate the event, talk to the same dwarf from the previous event. He wants to see a sad face this time.
Go to the forest and jump on the mushroom to the right to give Tomba the crying status effect.
Head back to the dwarf and press the attack button to make Tomba cry in front of the dwarf. The dwarf is satisfied and heads back to Dwarf Village. The event is cleared, and Tomba can pass into Phoenix Mountain.