I only did route 1 (I have heard of people getting the items on route 2), that way you can evade any combat event and you don't need to worry about your person dieing at all. Of course, you won't get any decent rewards at the end, but if you are only doing it for the Lumberjack set then I recommend only doing route 1. And yes, you lose your items if you die during the mini-game. ~Trumpet