So this is actually my first playthrough of Psychonauts and I'm at Waterloo. I have everything done except the last militiaman, the one who wants to be paid.
I have the coin, and whether I have it in my hand or not the only thing that happens when I USE his door, is the following exchange
"Hey, isn't this big knight bothering you?"
The door does not open, that simply plays. This is both with and without the Priceless Coin in hand.
I have no idea how this might be fixed, but if anyone has a savegame from just after The Milkman Conspiracy, that might remedy this roadblock on a reinstall?