Командная строка VS2008 + Cygwin

Ваш путь должен быть изменен так, чтобы он работал:

@echo off

rem Your code before the code you provided above ^^

:forest1
echo You awake in a forest, you do not know where you are or why you are there.
echo In front of you is a small goblin like creature
goto :recoil1

:recoil1
set /p "answer=What do you do? "
if "%answer%" == "run" (
    goto :run1
) else (
    if "%answer%" == "attack" (
        goto :attack1
    ) else ( 
        if "%answer%" == "befriend" (
            goto :befriend1
        ) else (
            if "%answer%" == "scream" (
                goto :scream1
            ) else ( 
                if "%answer%" == "dance" (
                    goto :dance1
                ) else (
                    echo Nothing happened.
                    timeout /t 1
                    goto :forest1
                )
            )
        )
    )
)

Понимаете: это немного сложно; Вы пропустили много скобок!

Итак, используйте команду choice с некоторыми изменениями:

@echo off

rem Your code before the code you provided above ^^

:forest1
echo You awake in a forest, you do not know where you are or why you are there.
echo In front of you is a small goblin like creature
goto :recoil1

:recoil1
echo What do you do? Here is a list of options:
echo r - run away
echo a - attack the goblin
echo b - be friend with the goblin
echo s - scream
echo d - dance
echo n - do nothing

choice /C:rabsdn /N

if errorlevel 6 (
    echo Nothing happened.
    timeout /t 1
    goto :forest1
)
if errorlevel 5 goto :dance1
if errorlevel 4 goto :scream1
if errorlevel 3 goto :befriend1
if errorlevel 2 goto :attack1
if errorlevel 1 goto :run1

, что яснее, быстрее и удобочитаемее, не так ли?

Измените параметры, чтобы они лучше подходили для вас.