There were indeed some small problems with the NPC.tbl file - I mistakenly uploaded the wrong one.
Here's the correct version - replace the current one by this one and the experimental tweaks I had forgotten to remove will be fixed. Thanks for bringing those problems up.
Some enemies are, indeed, incapable of dropping hearts. The cannons only drop experience because they can't follow the regular "death" event in order to break down the way they do. It could be fixed if there's enough demand, but the jellyfishes drop health in the event of an emergency. That section isn't meant to be one where you can sit around and gather resources, though. (You missed a health pickup if you have 8 hp after the tunnel, by the way.)
The save point is hardly any far from the boss (assuming you mean the tunnel; the old factory's isn't very far into the stage, but it's a very easy stage so it's a moot point..) It's roughly a screen and a half away. Unless you throw yourself at everything you see, it's difficult to lose any health along the remainder of the way. >"< To boot, there are 3 save points in that area (two of which have a health recovery entity,) which is quite generous IMO.
And yes, the jellyfishes are the hardest part of the hack.
But like the other two bosses there's a simple trick to beating them. Have the Ion Device at level 3 and fire as many shots as you can before getting out of the way to avoid getting crushed. At this point it's easier to continue fighting in the water. The ledges often protect you from a diving jellyfish as well (though it's not something you should rely on.) I lose between 4-5 hp in that fight, tops. I had a hard time but now I can beat them all the time unless I get really unlucky.
Someone mentionned using the rock cannon at level 3 and firing at them constantly. This didn't work at all for me (I died before any of them could) but perhaps it might work better for you. I still say the Ion Device is the best (protip: it can also take out cannons without you having to place yourself in harm's way most of the time, too! The rock cannon does have a longer reach than them at level 3 though, if you power it up that far.) but the rock cannon's rate of fire and range could allow you to keep out of the water and away from the jellies, I suppose.
Edit: There's an item sparkly near the entrance of the tunnel, once you beat it. If it's too easy to miss, I could have an event where attention is called over to that spot. After getting it, it should be obvious where you need to use this item based on its description (unless you breezed through the hack and skipped everything in the factory - I'd hardly be surprised if anyone would find the hack difficult after skipping the ion device!)
Edit 2: I watered down the tunnel (*snicker*) and the jelly fight somewhat, and made the health capsule give slightly more health. It doesn't get any easier than this.
Grab it
here.