Clownfoolery

Head into the room with the giant jack in the box and stack into the doll with a hammer on his head.
Use the doll's hammer ability to repeatedly attack the doll standing in front of the jack in the box. Eventually, he will get sick of you and open the box.
When the box opens, a giant evil looking clown will pop out. Stack into dolls until you're big enough to stack into the clown.
Head back down to where Simpleton is and use the Clown's ability to scare him off.

Masked Mirage

The first thing to do is gain control of the Corporate Spy doll. You should be able to spot him immediately by his brown trenchcoat.
His ability allows him to place a villainous mask on any other doll to make others think that they work for the Baron.
Place a mask on one of the larger dolls that are around the same size as the Baron's guards.
Stack into the disguised doll and head into the room with Simpleton to get him to leave his post.

Sheet Spirit

Head up a level to reach the children's workshop. Look for the doll hold a bunch of towels and stack into him.
Use this doll's ability to place a towel over the head of the child with a toothbrush on his head to create the illusion of a ghost.
Stack into this ghost child and head back down to give Simpleton a scare.