Bummer. The pencil ends up on the table once you solve the substitution. If you skip it and enter the password by a walkthrough solution (or figuring out the substitution table manually for the letters you need), then Scotty will never put it down on the table again. We did not build in a contingency for this (yet).
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Thanks for the help! I tried playing it twice and did the *exact* things you mention: the first time I played around with the diary until I understood how it worked, substituted the letters I needed and wrote them down on a notepad, and the second time I just typed the password in since I already knew it.
I'll play it again later to see the ending, third time's the charm! :D