But you might want to consider assigning the jump ability to the 'x' button, and make the close combat automatic with 'z' when the character is in contact with an enemy (especially since you link some special moves with up-'z').
Well, there are some cases where you want to use a ranged attack up close, or a melee attack at a longer range, so I don't want to a control scheme like that. The up-z move is the only one tied to the up direction that's usable on the ground, and it has enough recoil to send you back to the ground pretty quickly anyways.
Also, you should make an enemy that fires projectiles, like an crossbowman or something, to prevent the player from just settling in a corner and repeatedly firing upwards(or you could make the up shot damaging to the player when it explodes, forcing him to stay on the move).
I would like to add more enemies. Unfortunately, I won't be able to work on this after this weekend, so I'll only add them as time permits. The up-shot is a little abusable, though, so I've tried to balance it. Now, if you spam it, you shoot fewer grenades.
I really like the large shot(shooting downwards is fun, try to lower the gravity a bit on the main character, could really open some styles there).
I edited the downwards shot so it can be combined with other aerial attacks much more easily. You're right; that opens many more options.
The "two hits" health system kinda reminds me of Halo, in so much as you only die if you sustain damage over a short period of time. What Halo has that you're missing though is feedback for when you're near to death. I think it'd really help to show more explicitly both when the player is hit, and when the player is one hit from death.
You're vulnerable for about a second after being hit. I'll add some feedback if I have time, but I don't think it's absolutely necessary, since you should be avoiding attacks anyway.
I could play the demo for ages
Glad to hear it. I don't have time to put in a ton of content, so the replayability has to be a strong point.