This is a common place to get stuck, and I believe you have to go to the Topolla theater, buy a ticket, go into the showroom, then talk to the Runaway Five. Afterwards, go back out and watch their show. Afterwards, go into the room left of the main lobby, talk to the woman, and leave. Go into the desert to find a giant hole. Go into it, and fight through the dungeon. I can't give you any advice for getting through the dungeon, other than
Enemies:
Mad Duck- can prevent PSI attacks, but vulnerable top everything you can dish out.
Noose Man- Can bind you up, but they're very vulnerable to PSI Fire.
Gigantic Ant- Clones of the titanic ant. They can poison you. Just use PSI Rockin', and they should be easy.
Thirsty Coil Snake- They can poison you. Other than that, they're pathetically weak.
There are also five big moles you have to fight, and they all claim to be the 3rd strongest. Strategy for them:
Use PSI Paralysis, and beware of their power shields. Use PSI attacks and/or explosives to take them out.
Once you beat them all, leave and head back to Fourside. George Montague will give you a Diamond on the bridge. Head on back to Topolla theater, and use the Diamond on the woman to free the Runaway Five. Watch their show, then leave. The Department Store ought to be open. SAVE. Now, buy any weapons, items, and armor you want. On the 2nd floor, there should be a secret door on the left that sells explosives. Once you try to leave, Paula gets kidnapped. Head up to the fourth floor, and beware of the enemies, which are all generally weak. Once you get to the top, fight the Mook, and leave the Dept. Store. The Mook will generally be weak to Paralysis, and anything else you can dish out without Paula. I'm pretty sure you can find your way after that.