Remember the cutscene earlier with the Meniuire Forest about the woodcutter losing his hair? Well that was a prequel to this chapter. I don't really need to explain the need to level up because I'm sure the previous chapter has proven that high leveled characters are great for the game. Anyway, go back to the forest and encounter these mounds of walking hair. Clear the first 10 of them at the forest entrance before going back to the city. Talk to people, talk to everyone, eventually you'll get a clue as to what's happening (and yeah this is essential to acquire the good ending).
So here's what you need to do. After going back to town and talking to Barsom's girlfriend. COnfront him at his house - via the Event Tile there.
10 more furries will await you, deal with them before once again going back to town. Seems tedious but this is the only way to get a good ending here. After talking to Suzanne again, and getting her answer head back to Barsom's for the third and final time.