The goblins get past the giant who is blocking the path out of the village, and decide to visit a famous castle.
Destroy the Statue
Have 
Fingus go into the tower in the upper-right of the
screen. He will
throw a bomb to the right of the bridge to the castle.
Make sure both goblins are standing near the bomb, then have
Fingus click the bomb, then have
Winkle use the matches on the bomb.
This will destroy the statue that guards the bridge.
Move the Magic Carpet
Have Winkle go into the tower in the upper-right of the
screen. He will throw a bomb that lands near the tentacle in the trench.
Make sure both goblins are standing near the bomb, then have
Fingus click the bomb, then have
Winkle use the matches on the bomb.
This will make the magic carpet float over to the parapet.
Now have Fingus go into the tower to throw another bomb to
the right of the bridge to the castle.
Make sure both goblins are standing near the bomb, then have
Winkle click the bomb, then have
Fingus use the matches on the bomb. This will make the
magic carpet land next to Soka (the person floating on a string).
Talk to Soka
You can have each character click on the carpet to get a clue: to enter the castle, don't go in through the door, and throw the sands of time into the trench to enter the castle.
There isn't anything more you can do in this area right now, so move the cursor to the bottom left corner of the screen until it turns into a door icon, and click to go to the town, or move the mouse to the top of the screen and choose the wooden sign, then click Tom (the name of someone in the town) to go to the town.