I managed to win this on my second try. I built my dungeon in a way so there is a single entrance leading to the heart and before anyone gets there they need to walk through a training room and the lair I made for resting tentacles. Although I had taken just one gem I had an abundance of gold and that became useful when I finally found the healing spell.
What confused me a lot was the water. Bridges kept appearing but I was too slow to notice when and where. To this moment I still don't know whether they were time-based or something else was triggering them. There were lots of messages but none of them was really helpful. I thought I got an undead because I read something about zombie gandalf; or I kept looking for a blue wizard with sight spell but there was no player blue.
Did not really use guard posts because with that much gold and army that weak everyone was in the training room. If I had to play this again I would also skip the entire workshop and put my trolls into training room - efficient fairy killers.
What surprised me was that I could move increase special from water in possession, but not the mysterious box from neutral ground (I destroyed the barracks using cta). Got boulder trap from green's dungeon but I only got to kill a couple of fairies with it.
I won with 2 bile demons, 3 mistresses, 1 vampire, 3 tentacles and 2 spiders. All levels 6-7. Managed to claim barracks only after I won the level already so no orcs. Got 1 skeleton but it got killed by my bile demons. Didnt convert shit. Everytime I destroyed a barracks tile I got a room lost message.