Thanks so much for following up on the bug. I can reproduce it consistently now. It seems like there are other errors that go hand in hand with it too, like prop shadows spawning with props that don't use them. That floating enemy may be related too. It must be some weird interaction between the save system and the level generation, but I don't know what it could be yet.
And yeah, I use photoshop. People keep telling me to switch to Graphics Gale because that's actually made specifically for pixel animation, but I can't get used to the interface.
I'll be adding controller support and custom keybinds eventually, but it's really good to hear my defaults work well for others!
To answer your question, pretty much any stage that isn't the home base or a boss arena is generated when you arrive there. Because my assets are all fairly low resolution I can get away with having lots of sprites that are very large relative to the player without costing much memory, so each island is a single sprite. (I like to avoid tiling as much as possible for a more natural look.)
Generation starts with a loose template, which is just a sprite with a path roughed out in image points (the red squares), scaled up to the size of the level. Large islands are then placed at each image point. Then I do a second pass with smaller islands. Now the smaller islands are just sitting on top of the larger ones and it looks awful, so I have them set up to move away from each other if they're overlapping. Once they've sorted themselves out I do a third pass, this time without the template, instead spawning at the locations of random existing islands, and they push themselves around to fit again.
Then it's time for props. Rocks, large plantlife and other stuff get distributed across the islands, with preference going to large islands so they don't look too empty. Then small plants are distributed , with every third one being placed near an existing one, so they appear to propagate in patches.
Finally monsters are spawned, and each type has it's own conditions for that. Things like hives needing to be on a large island, and nobody can spawn too close to the player's starting island.
I hope that made sense and wasn't too long-winded!