(Optional) If you want to beat him fair and square,
these are the moves you should follow:
Move D6 to B7
Move B8 to A8
Move B7 to C5
Pick up the key from the Chessmaster's head.
Leave, then go right twice and enter the door.
Kill the janitor (ranged weapons work best).
Go right, unlock and enter the party room.
Kill the clown to receive the chainsaw, Kewpie doll and Kewpie key.
Go back out into the hallway, and walk until you find the double doors.
Unlock them with the kewpie key, and collect the two flags on top of the stage.
In the backstage area, collect the wooden planks and the sandwich from the lunch box (extra health).
Enter the door on the far right (smoking room) and kill the burnt man inside.
Get the lighter fluid located next to the sofa.
Leave the room and operate the white and black masks on the wall.
Spin the white mask 4 times and the black mask 7 times to reveal a door to the laundry room.
Note: I'm not sure how you're supposed to figure this out on your own.
In the script it's suggested that the surrounding wallpaper would hold the answer, but that isn't true for the final version of the game.
(I suggest you save before entering into the next room!)
The door leads to the boiler room; if you don't fix the pipes in time you will die.
Pick up the three pipes and the wrench on the floor, then turn the valve near the broken pipe to turn off the steam.
Combine the three pipes in your inventory, then remove the old pipe with the wrench.
Replace it with the new pipe and turn on the valve to reveal a hidden compartment with a key to the next room. (Phew!)
Kill the man in the next room and continue to the left.
Use the wooden planks to fashion a makeshift bridge to the next door.
The ceiling in this room is slowly closing in on you, so place the flag poles onto the pedestels to stop it.
Once the ceiling stops, enter the next room and kill the guard there to gain access to Level 3.