Lost Chao Locations
Locating the Ancient Ruins:
Directly in front of you at the start of the level, take the pulley up. The Ancient Ruin is right here.
Finding the Lost Chao:
When you activate the ruins with the Mystic Melody, the door in front of the broken mining carts will open. Punch through all the mining carts until you get to end and jump into the water. Swim down and it will take you to an area with some ghosts. Directly when you get here, you will see some rings leading upwards - follow the rings and it will take you up to an underwater path. At the end of this path is another pulley which will take you to the Lost Chao.