Rocket Town, Cosmo Canyon, Forgotten City & Diamond Weapon - Disc 2
For this part of the game we're going to be doing a buttload of running to and from different places. If you only want a succinct list of each step on how to advance the story then I recommend you use my numbered points below this paragraph, it'll save you time rather than me explaining how to get to places you've already been.
1. Rocket Town: Go to the rocketship
2. Huge Materia Password: Circle; Square; X; X
3. Cosmo Canyon: Speak with Bugenhagen in the observatory
4. Key to the Ancients (Found underwater)
5. Forgotten City: Left at the fork, go to the platform at the end of the path
6. Outside Midgar: Fight Diamond Weapon
Of course I am going to explain each step in detail too, incase anyone gets lost and so I can point out the treasures to anyone who didn't grab them earlier on Disc 2. If you didn't come to Rocket Town earlier on in Disc 2 there's two treasures for you to collect from here now - for more information check out my Rocket Town Disc 2 Treasures page.
Head on back to the rocketship and fight all of the Shinra Soldiers there to gain access. There will be a long story scene before you're back in control of Cloud. The Huge Materia is found in a room to your left up a ladder, inspect the machine in the center part of the room and it'll prompt you to enter a password.
The password for it is Circle, Square, X, X. After you obtain the Huge Materia you can hop on the escape pod and head on back down to the planet. There'll be a long story scene aboard the Highwind before Red XIII suggests your next location, Cosmo Canyon.
Note: Technically you can return to Rocket Town right now and collect Venus Gospel, Cid's Ultimate Weapon. All you have to do is speak to the guy outside the Item Shop three times.
In Cosmo Canyon there are some treasures available for you to grab if you didn't come here earlier on Disc 2. There's an Elixir, Magic Source and Full Cure Materia for you in the Item Shop in the eastern part of town. For directions use my Cosmo Canyon Treasures page.
At the top of Cosmo Canyon in the observatory during the scene with Bugenhagen you'll want to 'get a closer look' at the blue Huge Materia to receive the Bahamut Zero Summon. This is a missable Materia in two regards, if you didn't collect all four Huge Materia you can't pick up this summon.
Once you've examined the blue Huge Materia and you have Bahamut ZERO in hand, choose the 'Go down' option and before you know it you'll find yourself on the Highwind with Bugenhagen. Next stop - Forgotten Capital/Forgotten City whatever you wanna call it!
You can land the Highwind right outside this place so there's no reason to go back through the Sleeping Forest. At the entrance to the Forgotten Capital you're going to want to go left at the intersection and follow the path to the floating island thing. When you enter this screen your party members will run out and start going over to the island - so I doubt you can miss it.
There will be another long story scene here, when it's finished return to the Highwind. Before jumping inside and setting off I strongly recommend preparing your party for a tough boss fight. You still have time to prepare even if you're in flight now - just do it when we land again.
Diamond Weapon Tips:
Magics: Bolt3 (He's weak to lightning), Ultima, Comet, Summons - put at least one magic spell on every character since he is immune to physical attacks at the start
Accessories: Ribbons & Fire Rings
Armor: Dragon Armlet
**Important Steal Tip** Rising Sun, a weapon for Yuffie can be stolen from Diamond Weapon
After you beat Diamond Weapon and watch the cutscene fly to the Northern Crater to inspect what happened for another scene. Technically our next stop is Midgar but you're going to want to do some side quests first. This is your last chance to complete the Wutai Side Quest and obtain the rewards for doing so - the MP Absorb Materia as well as more will become permanently unavailable from this point on if you don't get them now.
There are more side quests you can do that will still be here when you get done Midgar, but now is a good time to knock them out anyway.