This version is
much better than the first, in so many ways. Good job coming up with a plot that works for a short story. I, of course, still want more story. This is both good and bad; it's good because it means I liked the story enough to want to keep reading, and it's bad because I still am not satisfied with the ending.
Don't worry; the issue is not so serious this time as it was the last. I just don't think you ended on quite the right note. I wanted the story to linger just a bit longer, and instead, it wrapped up in a rush. I know I have issues with this too, but that doesn't mean I can't call it like I see it.
But more than that, I think the Colonel's question is off. "So you're going to throw your lot in with us?" Well, like, DUH. You didn't giver her a choice, doofus. (Yes, okay, he gave her the non-choice of conscription or death.)
Another thing I thought was just a bit off was when Phaylyn mind melds with BalKon, and she sees his perception of her, and he grieves having chosen to foster to her. The way it was presented left the fostering as a random and irrational act. BalKon seems like a much wiser, more grounded individual than that. He had to have seen something in her, or at least had a reason that seemed good at the time. He should definitely feel pain for her continued rejection and childishness, he should probably be feeling a bit of buyer's remorse, but I want his reasoning for the original act to come through. I want Phay to see the kernel of hope he harbors that she will reach the potential he must have seen in her.
Another oddity is that no other smoke knight (err, what did you call them? Smoke knights are from Girl Genius, and my brain just filled it in for the term it couldn't remember, so that is what they shall be called) discovered how to kill the ghouls (again, the real term is just gone from my brain). Are they just trained more, and so shielded themselves from connecting deeply enough? Bring that out. The Colonel accepted her declaration that she knew how to take them down far too easily anyway; his disbelief could be a good spot to bring that out.
Both the Colonel and Porish felt just a bit off, character-wise. They felt shallower, and lacking in depth. This is hard for me to quantify, and honestly I could just be subconsciously reacting to the change since I got to know them before, in the other draft, but it's something to look at.
Also, the scene with Phay and Poorish was a little rough. Phay's childish protestations need work to not come off awkward, and Porish needs to be a bit more dignified.
(I should note that these are just one man's opinion; I speak in the imperative (I want this; this needs to happen), but take them for what they are: opinions that could be wrong.)
You've done an admirable job improving the piece, and now all it needs is some polish, and a little extra "oomph". The gifts of Alowish are much cooler in this version, and much more competitive with those of Furnios. I still enjoy your world, I still think it feels like the setting for a novel, and I still wish I had a novel-sized story with this setting and characters, but these are good things. The plot is tighter, there's more narrative tension. Nice work.