The start was impresive.
I got as far as the terrain, and then everything was so dark, I had to quit and lookm int he editor. I must have gone in between 2 stones that you have as walls. If you put in blocking volumns, that would take care of that problem. Then there is the terrain itself. I walked through it a few times. you have it stretched too far. Take a look at the grids in the terriain itself (go in wireframe mode). If the grid is stretched to far apart, the player can fall through. If you want to make your mountains high, try Painting them, instead of vertex editing. This is sometimes easier to do than vertex editing. To do this, in the terrain edito, make sure the terrain info is selected, click on the paint tab and then left click and drag your mouse. Your terrain will come up, right clicking will bring it back down. Move your sliders so that the big circle is about 3 to 4 times the size of the small circle.
I will keep looking and post you later.