Here's an update.
I just added a back pose of Merlon.


Update: Here is Merlon walking.

His feet just disappear

they shouldn't just disappear

The feet should swing back farther to the point where we can't see one of them. One of the feet should be under the cloak.

but shading should reflect this, the cloak should be laying on the top of the legs and when the leg is pulled back for a short period the cloak should go with it and being more occluded the cloak would be lesser lit.
likewise when the foot is put forwards the cloak should move forwards (as well as the foot might I add, which you have yet to put in) and being less occluded the cloak would be better lit.

It wouldn't be that sudden. If you want to convey that feeling, then make the other three frames move farther than they do.

EDIT: Ninja'd, sort of. Different points, same message.

Okay, I just re-adjust the animation a little bit more.

They still disappear. At least a few pixels have to show.

I think this is better rather than disappearing.

still disappearing, no offence, but scrap this concept of the walking animation, all it is, is bobbing and tongues popping out from under the cloak.
you need the feet to rise by some degree when swining in front, you then want both the feet to draw back until the raised foot is normal and the other foot is about to swing forward, etc.

Here it is. I just added 2 new sprites.

You're really close now. The issue is he's currently walking in place. He just needs to put his extended foot on the ground in front of him now. So when its retracting you wouldn't see the bottom of it, but rather more of its top and front.

why not take a look at Magikoopa's walk from the same game, use that as a reference more, that might help.

EDIT: also, it looks like the body is still staying in one place, try to make the body sway more, that could also help a little.

Which is animation is better? Choice number 1,2, or 3?

1.

2.

3.

none, they all have the exact same problem.
EDIT: I should elaborate,
take a look at a run cycle

now ignore the upper body because the fact hes walking means he wont be swinging his arms like the animation above,
but look at the way the legs move, his feet aren't slipping around on the floor, hes raising his knee before swinging it out front and planting it!
I could elaborate more and more all day on the differences between moon walking and actual walking, but just observe the image above.

EDIT to touch on something else, your using far too many useless colours, things that blend in too much and make no difference, particularly in the white and red.
Your sheet is also in an irregular pattern, I'd advise 64 x 64 to stick to a well known standard, or possibly 48 x 48 if the sprite will fit.

In fact I really don't see a difference.