Yes I have been making CLOY COMBUSTIBLES myself - the way you worded that makes me believe there must be one or more to find in the game somewhere, but I haven't. Here's how you dry TOWERLUNG: gur onfrzrag bira ng UBZR.
Regarding "killing" the TOWN ghost, does it have something to do with the orbs on the pedestals that appear when you hold the GLAIVE?
Edit: I killed the GHOST at last, that bastard. Also found where you can purchase CLOY COMBUSTIBLES. Alas, GIRL has fallen ill...