The Ring is in 1-1, in the bit where the two dragons are nesting. You can't retrieve it, however, unless the Red Dragon is dead.
To kill the Red Dragon, first equip yourself with a bow (Compound Shortbow or Compound Longbow, un-upgraded, will work), and at least 120 standard arrows from the blacksmith in the Nexus. If you haven't got either of these bows, you can find them in 4-1.
Go to 1-2, and continue up to the bridge, to the bit where the Red Dragon does its first 'bombing run'. Get past it and up to the first of the little towers that appear down the bridge, with crossbow enemies positioned on top. Go up to the top of the little tower and kill the enemies on top of it.
Then position yourself facing where the Red Dragon makes his bombing runs down the section of bridge you just came down. He'll do it over and over again like clockwork, so you just need to fire an arrow at him accurately every time he whizzes past. If you've done it correctly, you'll see his health bar flash up for a split second.
It will take you 100 odd arrows most likely, but you will be able to take him down this way. It takes a few minutes but it's not difficult once you've got your aim locked and your timing down.
Once he's dead, go to 1-1 and navigate to the part of the level where the two dragons were formerly resting. The Red One is obviously gone but the Blue one is still there. Go and collect all the items in that area, watching out for the Blue Dragon's tail. One of them will be the Ring of Great Strength.
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