Variol,
When you put the staff in the stone, do you see it visually or do you see a white dot on the radar? I once had the problem that you're describing. I had placed the staff into the stone and it showed as a white dot on the map (as if I'd discarded it), but there was staff to be seen and no mushroom ring. Luckily, I had a second short staff, put it into the stone, and everything worked. When it works correctly, you should be able to see the mushroom ring simply by turning around in a circle.
I didn't mention this scenario previously because I thought it was just a quirk that I'd stumbled across (the game seems to have these occasionally) and I'd never seen it before or after the one time.
Good luck,
tuck
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