Sorry, forgot to mention that while battling the infected villagers and they were walking through the battle, as one of the combatants died, the system displayed a broken chain icon for a few seconds, the wizard 101 screen change came up and then took me back into the battle. It was hung for a few moments and then resumed. That is probably why it quit letting me pick up mushrooms, as I noticed it was not letting me pickup the cat tails in Kishibe either.
