You'll have to find the Fairy and Elf Statues to access the area where you'll find the Pixie Flute. The Fairy Statue is on the shelf near the entrance to Diciples' Tower. The Elf Statue is on a bar a little further inside the building. When you take the statues up the stairway in the Tower, Lakmir will stop you and talk to you. When he's finished, continue up the stairs where you will find Liquid Sunset and an Ancient Coin. You also will find a statue puzzle on a shelf-a perfect place to put your Fairy and Elf Statues. If you place them correctly, a staircase leading to the Pixie Flute will open.