The first part of the walkthrough--getting started--is the toughest.  How do you just not get killed yet build your characters up at the same time?  The answer is pretty easy.  You find the right sort of monster to attack and then don't let up on them.  In this case the right monsters are skeletons.

Skeletons, however, are impervious to regular items, so you may want to stock up on magic stuff(even if it's cheap) first at the armory.  If you're a real low-down cheater you can create, say, 16 characters and have one of your "real" characters pool five "dummy" characters' gold--and you might as well nick their food, too.  Buy some good magic weapons and you're ready to kick butt.  Exit the inn, go 2 north, 4 east, 3 south, 1 west, and 2 north(the last step is through a locked door.)  The best part about this is that you can enter the inn and return--by the way, accepting Nordon's quest is a good idea--to fight the skeletons again.  Three fights at 500 experience per fight get your "unskilled" characters(Robber, Knight, Cleric, and (if you bother)Barbarian) a level.  Pay for your cleric's level first because then you can REALLY whip the skeletons.  Repeat this process about eight times.  Your characters now have 4000 experience each, putting them at level 3 all around.  In the meantime, get to the point where you can buy the best stuff you can at the armory.  It's worth it.  Now you can actually face the dungeon below.

You don't want to go outside for a while.  It's fun, but your characters may be ill-equipped to deal with the fights and also the random damages that occur outside of fights(for instance, deadly lava outside Vulcana!)  The towns themselves are tough enough.  Let's explore them first.

Things to do in Middlegate:

Pick up auto-mapping skills, unless you feel it would ruin the game(and if you're reading a walkthrough, you probably don't!)

Picking up the goblet is almost distressingly easy.  Below the town go three east and one north.  If you're in the mood to avoid combat, jump west(over the monsters' challenge) and jump west at the intersection again.  Then 2 squares away from the door, you'll have an easy encounter.  Jump from there to get to the door.  This one will be tough so maybe you'll want to rest first, but inside the door should be pretty easy.  Get the goblet and return to Nordon(jump if you just wanna get out of there!)  Nice gifts, huh?  Due to a bug in the game you can fulfill Nordon's quest multiple times, which makes for about as easy experience as beating up skeletons--and it adds to variety.  Still, skeletons give quick experience and cash for when you're starting out.  24 fights(an hour, maybe, off a quick emulator) and you've got level-3 cleric spells.  32 and you've got level-3 sorceror spells, including fireball/lightning.

At some time you may wish to play around with the portals.  They're relatively cheap and will give you a good feel for other towns.  If gold is ever a problem, just fight the skeletons a few times, or re-do Nordon's quest.

Nordonna is in the southwest.  After talking to Nordon, you'll get a quest from her to rescue two hirelings, Sir Hyron and Drog.  They're pretty easy to rescue, and they're pretty worthless, but let's get them anyhow.  Your characters may be clocking experience points, but you need experience of your own.  Follow the path to Nordon's;  make the first jump but not the second.  Go north after the encounter and jump to get past monsters.  You will then need to go west.  Do so with more jumps.  Sir Hyron and Drog will be grateful.  Note:  there are better hirelings than these guys, but sometimes it's nice just to have a warm body, especially for the fights to prove your worth.

Things to do in Atlantium:

Avoid combat unless you're good.  Don't walk into an arena with a black ticket unless you're REALLY good.  The training facilities here are more expensive but worth it.  You get more hit points per level.

Be sure to read the statues on the west and east sides!  They contain lots of information about class-specificc quests you'll need to win the game.

One of the pools outside(the sewage, three west) does wonders for you.  Drink from it and go fight some tough monsters.  You'll win easily, unless they're REALLY tough.  In fact, I'd advise drinking from it before breaking into the jail(there are two hirelings in the jail!)

Things to do in Tundara:

There are a couple of hirelings here, Rat Fink and Gertrude.  Speaking of hirelings, you'll want to bring one to Tundara when you get down to business;  more on that later.

Now that you've got the emerald ring, you'll probably want to give your hireling the ring and disband him.

Things to do in Sandsobar:

You'll probably need to explore the dungeon.
Don't explore outside too much.

Things to do in every town:

Donate to each of the temples.  You will get something called a Fe Farthing at the fifth one.  "Flick" it in the fountain in the northeast corner of Middlegate.  There you will get a Castle Key, which allows you in castles.

Next thing you'll want to do is to buy the keys for the towns.
Green-Middlegate
Yellow-Sandsobar
Red-Vulcania
Black-Atlantium

You will then want to go to the respective castles and free the bishops of each castle.  This is the first of three parts of being worthy.  While you're at it, pick up the Radicon(Woodhaven), Fluxer(Pinehurst), Capitor(Hillstone), and Todilor(Luxus)(one from each castle).

Also, you'll want to fight with one of each color ticket at the Arena(Middlegate), Monster Bowl(Sandsobar), and Colosseum(Atlantium)--12 tickets total, if you have trouble with the black ticket fights I recommend drinking from the spring west of Atlantium(everyone gets 100 stats) and then entering the town(use town transport).  You may want some skill potions(from Tundara) on the side, too, and use them just before battle.

"Triple Crown Winners" have won all four battles at all three arenas.  Complete the class specific quests, go to see Queen Lamanda, and she will be pleased.

The class-specific quests:
Jouster's Way(Knights):  this one is probably the easiest of the lot.  Bring along a lot of knights and robbers and a LOT of healing potions.  You may also want to drink some skill potions before fighting--that may make the battle quicker.  The key thing to remember here is that the Jouster can only attack once, so he can only hurt one party member at a time.  You can attack several times and heal the injured party member with another character if you need to.  Note that you should bring all the robbers you can along--it'll make the next journey SO much easier.
Baron Wilfrey(Archers):  See the strategy for Jouster's Way.  Get some hirelings with forestry skill, and you should be set.  Wilfrey is tougher than the Jouster, though, so beware.
Corak's Cave(Clerics):  First get Corak's Soul at C1-10,15.  You may want to get Holy Word first.  It's near, over by C1 (5,5) if you face south.  Once you've got Corak's Soul(and the Admit 8 pass--0,0 Sandsobar dungeon.  This also comes up as a random item but only seemingly after you've gotten it from the zombie) you are ready to rock and roll.  Give your main cleric a lot of gems and blast through the place.  Corak's at the very south, and you'll need to make a side trip on the way.  On your way, find the secret doors behind the stairs to get Lloyd's Beacon and clues on two more hirelings, Red Duke and Dead Eye.  If you give up your Admit 8 Pass without finding Corak, you'll need to go to Sandsobar again.
**Isles of Good, Evil(Sorcerors)**:  these are a lot easier if you know which doors to go through.  Basically you can get through with just one encounter on each isle.  Release Ybmug and Yekop(see the Atlantium statues) and you are done.  Ybmug and Yekop are Gumby and Pokey spelled backwards, if you didn't notice.
**Frost Dragon's Cave(Paladins)**:  enter the cave and go one south.  You're probably best off buying a teleport orb so that you can get to the cave directly, after you've donated at a temple.  That's for protection against the Frost Dragon breathing Frost.  The hardest thing here is to FIND the frost dragon.
**Brutal Bruno(Barbarians)**:  This is the next-easiest, but the question arises:  why a barbarian?  Really?  Follow the instructions for Jouster's Way but with barbarians instead of knights, of course.
**Dawn(Ninjas)**:  This is a nasty one because Ninjas can't cast spells, but you'll be doing a lot of fighting and thus will need a lot of healing.  Still it's certainly a challenge.  As a side note, Dawn is the only class-specific quest that will accept challenges from other classes, and in fact you need to kill Dawn to make Murray happy.

This is the third thing you need to be worthy.

Once you've finished the class-specific quests, the next thing to do is to find Sherman and Nakazawa.  They're at B4(8,1) and you want to bring Sherman to Lord Peabody at Pinehurst so you can get time travel.

Once you have time travel, you'll want to see Castle Xabran in the 800's.  Going directly north from where you start will get you killed(i.e. C4 (14,5);  Kalohn needs the orb and talons to defeat the Mega Dragon), so fly to C2 and hit the square that is the ruins of a castle in the 900's.  Castle Xabran will be there.  It has a whole ton of information so don't just stop to pick up the four discs.  (6,2) (6,14) (15,0) (15,15) are their locations.  If your backpacks are full just drop an item and search again.  When you're done, just rest until you're sent back to the 900's.

By now you can probably knock off the elemental planes.  I'd advise picking up the transmutation and encasement spells at once;  each set of 4 spells forms an easily navigable square.  Your easiest element is probably earth, and I would go with that first.  In the elemental planes you will have many combats beginning:  Element hydra + 3 (?) elementals.  Get used to it.  If you know the disc's location before you start, more power to you.  There's also an Element Lord in each plane.  Avoid him unless you like a challenge.  Remember, you need the disc to get the respective talon, and you need an item slot free, too.

So you have the talons but don't have the Orb for Kalohn in the 8th century.  Get the Orb from Dawn's Mist Bog.  You'll want to bring a hireling along, give him the orb, and dismiss him, because the Bog will prevent you from leaving if you have the orb.

There are 250 Greedy Snitches at (12,7) that you must fight if you can't hide from them--a secret door to the north leads to orb guardians(use magic BEFORE you get to them or your magic will fail!)  Now if you have the Radicon, Fluxer, Capitor, and Todilor, you can get the Orb.  Give it to your hireling and dismiss him.

Go back to the 8th century and give Kalohn the goods.  He'll kill the Mega Dragon, and you'll want to see him at the Luxus Palace.  He'll tell you the password(WAFE) and it's off to the Cave Geometricus.  The cave's easy to navigate, but there may be some annoying combats.  Whatever you do, don't fight the 66 Devil Kings!  They'll rip you to shreds even if you're very good.  Once you get to the top, Sheltem is surprisingly wimpy.  Remember the code Kalohn gives you after you kill Sheltem(WAFE) and then solve the puzzle.  It's coded, and decoded it reads:

WE THE peOPLE OF TErRA IN ORDER TO FORm a MORE PERFECT UNION, TO eSTAblISH....

The keyword is "preamble" and look at the lower case letters to see which ones to choose.  You'll get 50 million experience points and win the game!  Yay!

Sector-by-sector breakdown(may be moved to the FAQ):

Things to do in sector A1:  Tundara is here, along with the Air Encasement and Transmutation spells and the Air plane.  Each corner of the world features a different element, and in fact it's easy to move between them.  The corners all have transmutation and encasement in the same relative place so if you pick one up you might as well pick up the others, too.
Things to do in sector A2:  Pinehurst.  Bring Sherman here.  The time machine is in back of Lord Peabody.  Sarakin's mine is south from where wagon tracks lead off the road but is not for the faint of heart and is not necessary to complete the quest.
Things to do in sector A3:  The Gourmet.
Things to do in sector A4:  Atlantium is here, along with Water Encasement and Transmutation spells and the Water plane.
Things to do in sector B1:  Meenu the pegasus
Things to do in sector B2:  The Cuisinart.  Baron Wilfrey(Archers).
Things to do in sector B3:
Things to do in sector B4:  Find Sherman and Nakazawa(8,1) and pick up the Frenzy spell(10,1)
Things to do in sector C1:  Mark wants his keys at (1,1) or he'll kill one of your characters.  Fountains are in the Lost Souls' Woods, and Corak's Soul is at (10,15).
Things to do in sector C2:  Middlegate, Square Lake, Corak's Cave, and Castle Xabran are here.  Don't enter Square Lake until Kalohn is back on his throne and you've visited him.
Things to do in sector C3:  Nature's Gate is at (1,9) if you've eaten the Wolf Nipple Chips.
Things to do in sector C4:  The door to hell is good for amusement, but as you'll have to fight 240 cat corpses I recommend knowing Holy Word first.  Watch out for quicksand--it'll kill one party member.
Things to do in sector D1:  There are a lot of dragons to fight on the east side, but don't run into the Dead Zone.  It's no fun.  Be sure to explore the dragons' cave if you need extra gold.
Things to do in sector D2:
Mount Farview(7,0) and the Luxus Palace Royal(14,14) are the main attractions.  Mandagaul(6,8) stands in the way, but you can actually climb over mountains or back your party up to get by them.  Trees in the Royal Grounds may give you attributes of 200, but one also turns you to stone.  Lots of Royal Horsemen to fight there, too.
Things to do in sector D3:
Things to do in sector D4:  Visit Hillside.  Dawn's Mist Bog is at (3,7) but you must face north to enter.  Lightning bugs are on the mountain tops in the swamp.
Things to do in sector E1:  Vulcania is here, as are Fire Transmutation and Encasement and the entrance to the Fire Plane.
Things to do in sector E2:  An oasis at (3,7) and the Queen Beetle at (11,6).
Things to do in sector E3:  The Nomadic Rift is a fun place to go.  Also the Serpent King is one square north.
Things to do in sector E4:  Visit Sandsobar.  Pick up Earth Transmutation and Encasement and see the Earth Plane when you get stronger.

Cheating techniques:
The emerald ring is a nice item, isn't it?  Too bad you can have only one!  Unless, of course, you cheat.  There is a standard disk-swapping method that works well on Might and Magic II.  Here's how it goes.
Have characters in slots A-F on disk # 1.  Copy disk # 1 to disk # 2.  Add character G to disk # 1.  From disk # 1, exit an inn with characters A and G, where A has the emerald ring.  Trade the ring from A to G and enter an inn on disk # 2.  Exit the inn with ONLY G on disk # 2 and enter disk # 1's inn.  What does disk # 1 see?  G has an emerald ring, and so does A.  Repeat if you want, this time trading TWO emerald rings to G.

Humorous side note:  this trick works with gold, too, but that's not as valuable in this game as in its predecessor.  You can "only" accumulate 16777216 gold in MM2, and unlike MM1 you don't get levels every 200000 after a certain point.  It can quite possibly take 2000000 experience per level, and there are easier ways to pile up experience.  In Might and Magic I, I found an easy "cheat" where you duplicated your gold and then went to the Fabulous Fabled Fountain of Dragadune, which converts gold into experience.  A friend of mine, a week after buying the game, asked me to help him cheat like this.  I did.  He wound up with lots of experience, and when he went to train, he improved his characters to levels 99 and 79.  Then, when he rested, three of his characters died.  Even if he resurrected them they would die again.  He was distressed when he called me up, and I was baffled, too, until I remembered that you gained a year for each level you improved.  His cleric, robber and knight were all 18+98=116 years old!  Their statistics had deteriorated so badly that of course they died.  Shortly afterward my friend gave the game up, as he found it too boring.

The Cuisinart is the most experience you'll get for a battle, and he's rather easy to defeat, too.  Just don't press your luck attacking him too many times, or he may frenzy and kill all your characters.  Incidentally, you get the same experience for knocking off the Ancient Dragon, who is a LOT tougher because he breathes.