The characters don't really look iso to me.  They're in a plain side view.  They'd fit fine in a sidescroller, but in iso they look out of place.  One easy way to tell:  If you draw horizontal lines across your character, you can see that certain features line up: the shoulders, the hands, the feet, the eyes, they're all on the same horizontal lines.  In an isometric perspective, your 'horizontal' is actually a slanted line corresponding to the slant of the tiles you're using.  It's also viewed from above, so you see the tops of shapes as well as the sides (but never the bottoms).  Here's a quick pic to show you what I mean:

I'm afraid that I overestimated my own creativity.  Someone can go ahead and take my tile (99).

I have to say, there are few subjects to pixelation that I love more than cherry trees.  These look great!  However, the ones in front look a little off to me; it almost seems like the branches are too thick compared to how many blossoms they have.  It almost gives it the effect of a picture of a tangle of leafless branches with petals pasted on top of it.
Also, the sky looks amazing!

The sword doesn't look terrible as is, but it has a lot of potential which could yet be brought out.  Right now, its palette is kinda pulling it down.  It lacks contrast, and because of that details and shading get lost.  Its shaping and proportions are also a bit off; the outline isn't symmetrical, and a few things are off center.  The crosshilt seems to thick as it is, and the hilt and pommel could use a bit of slimming too, methinks.  Here's an edit to show you what I mean, it's kinda messy but it should get the general idea across.

The older one was able to make it look not just like plain cloth but like awesome magic cloth.  The newer one looks much less awesome design-wise, albeit more accurate.  Really, I think it's more important for it to look good stylistically than for it to make more sense in terms of actual cloth.