(Taken from playstationtrophies.org) - i am posting this for a proper solution and that is where i found this so users can avoid the "watch my 45 minute video" solutions we keep having posted on this site:
You will need the flippers to do this, so see Employee of the Month first to save yourself some trouble.
First you'll need to repair the bridge to the factory, so from the hotel, go right and then down to access the mines. Use your Sword Thrower to blow up the bombs from a distance, and then head up the stairs and into the pipe. Continue up to find three switches. The top switch will repair the bridge, and talking to the guy near the bridge will send him to the hotel, which should be the last thing you need for the flippers.
Head inside the factory and go right, down, and head down the stairs. Head up one screen, and you'll find the hub for all three conveyor belts you need to destroy to shut down the factory.
First, hit the power supply at the bottom left of the screen, and then break the lantern and head right. You'll see a long, winding conveyor belt with someone riding it. You need to ride the conveyor, hitting all the switches as you go. Once you hit them all, the conveyor belt should stop.
Next, from the hub room, break the lantern and go left. You'll be in a room with a conveyor, several boxes and a grinding machine (if you don't have the flippers you'll be stuck on the right side of the screen.) You can also access this room from the mines, which should be a lot quicker. You need to push the three boxes into the grinding machine. Two boxes are obvious, but for the third, you'll need to push it up and around the machine to get it in.
Once you shut down the East and West conveyer belts in the factory, go south, following the last running conveyer belt. You'll find someone who will tell you to hit the machine with your sword. It will get stuck, and you'll need to return with your watering can. From the hotel, instead of crossing the bridge to the factory, go south through the mines, up through the room with the grinder, and follow the path right and down to reach the room with the two trucks. From there, head up, left, down, and take the stairs to return to the conveyer belt, which you can follow down to return to your sword. You'll need to be quick to get back here within the time limit. Water your sword and receive the Mega Sword, which should also shut down the factory.