So after my latest run I've been thinking about how to best use your items. They speed up some fights significantly, especially multi-target fights and fights against opponents with high resistances like Hawk Hollywood and Wally (in his first phase). Also, because you're not using abilities and not taking a lot of damage (due to the fights ending so quickly) you have to rest less. It's actually possible to do area 3 entirely without resting (except for when you first arrive).

The prerequisites for doing this are that you get 4 Diesels after the Horrace fight (haven't checked where to best get enough bottles for this) and that you don't give TNT to the guys at the right of area 2 (go over them instead). This leaves you with 5 TNT (the six you get minus one for the door to Wally).

Also, I think it's best to take the Old Sock from Percy and put it on Jack. This accomplishes two things: It makes Percy slower than Birdie, which means that he can instantly profit from the Oil, and it makes Jack faster than certain enemies (most importantly Wally). This means that you can more safely plan around oil, because it can only wear off after the enemy attacks. For the Wally fight specifically, this means that the attack order is as follows: Jack - Wally - Birdie - Percy - Brad. Meaning that, if Wally is oiled up at the end of a turn, you can throw a TNT/Diesel with Jack and be 100% sure that it will profit from the oil.

TNT vs. Diesel: TNT does a little more damage than Diesel. http://lisa-rpg.wikia.com also says that TNT has a higher chance of causing burn (100% even) but I'm pretty sure this isn't true.

So, after some testing, this is my first version of how to best use TNT and Diesel:

1. The guards on the way to Wally: Use one TNT here, preferably with oiling one guy up first (meaning you throw the TNT with Brad or Percy the same turn you oil up with Birdie, although I'm not sure you should still wait for the oil if you don't have the 10 TP at the start of the fight, as the TNT damage will leave them pretty close to death even without oil.

2. Wally: Try to get 2 oiled up Diesels off in the first phase. Wally barely takes fire damage during his first phase (and significantly more in the second and especially third phase), so you want to make the first phase as short as possible. This fight is where the Old Sock on Jack really matters, because it means you get a safe oiled up Diesel. The fight should look like this: Oil up from Birdie, throw Diesel with Percy (who will attack after Birdie's oil). Next turn, throw Diesel with Jack (since Wally has not attacked since being oiled up, it will not have worn off). This takes Wally directly into the second phase, where he starts taking a lot more damage. Using TNT here is not needed as two Diesels are enough damage for phase 1. The biggest danger here is Birdie being one-shot before he can oil (and then Percy throwing a non-oil Diesel), so Birdie needs to be at 100% before the fight.

3. Columbo's gang: Use 1 TNT, preferably after oiling up one member (throw it with Percy the same turn you oil up). Again, not sure if it's worth it to wait if you don't start with 10 TP.

4. Bath House fight: Throw two Diesels. Oiling up is not necessary as the fight ends too quickly, so you should probably throw the Diesels with Jack and Birdie (the two fastest members if Percy doesn't have Old Sock). This will kill everyone but Han Tsunami, and he will only take like 2 more fire attacks after it.

5. Hawk Hollywood: Use 2 oiled up TNTs. Oil up with Birdie and throw TNT with Brad and throw the second one with Jack the next turn, BUT Jack is not faster than Hawk, which means the oil might wear off. There's also the risk of Birdie being killed before he oils up.

6. Buffalo: Use 1 TNT. Either throw it with Jack at the start of the fight, which will kill everyone but Buffalo if you're lucky (or leave them very low) or wait to oil up Buffalo, but you're risking getting stunned, so I'm not sure it's worth it.

I don't use any items for Bloodmoon (except for Joy on Brad). He doesn't have high resistances so he's pretty fast already with the regular routine.

Since you're barely using any abilities on Hawk, Han and Buffalo, you can do area 3 entirely without resting if everything goes right. But this kinda depends on your Jerky drops and how often people just randomly get one-shot.

You can use some enemies to heal up with secret stash "for free", especially the snowmen on the way to Buffalo. Check for each fight whether you have >15 TP, and if you do, guard with everyone and heal with Birdie, then flee.

If you can pull this off (and most of it actually seems pretty consistent) it makes area 3 way faster and some fights like Wally and Hawk much safer and faster. This is just a first rough plan after some testing, there are probably more optimal ways to use explosives. Also, do any of you have an idea where to best get more bottles (so you have 4 after Horrace) or if there might even be a way to get more Diesel/TNT?

Two more things I should add:

1. After some more testing, for the Bath House fight, you should actually unequip Birdie's Old Sock and equip it on Percy. This will make both Jack and Percy faster than every enemy but Han Tsunami, so you can throw 2 Diesels with Jack and Percy and no one but Han Tsunami ever gets to attack (and he also dies on the second turn).

2. At some point early in area 3, Percy actually becomes faster than Birdie even if Birdie has Old Sock equipped and Percy does not. Meaning, he can't instantly profit from Oil anymore, so the strat I described for Hawk Hollywood will most likely not work unless Percy missed out on some EXP at some point. So you should probably just throw the first TNT with Brad (on the same turn as Oil Up) and then the other one with Jack or Percy the next turn. But Hawk gets to attack before both of them, so the oil might wear off.