Firstly, I’ve found that the castle you gain after defeating level 5 is the best to use for this game. It’s a dense castle, so it forms dense rubble with its pieces as they come down. Since the castles don’t rebuild between levels, this is perhaps the best measure of a castle’s quality for defense.
Placing your treasure: Always place your treasure at a 90-degree corner. Do this because it’s behind a thin wall, which is harder to hit accurately. Further, the blocks that are open to Skarl’s attacks will tumble overtop of the treasure, which makes it harder to move. I usually place mine outside my castles, but that’s up to you.
To get the level three or five castle, just play once through that level, and go back and start again. That’s what I did, anyway. Play for points once you’ve put yourself in a good position to succeed.
At 1000 points, which is usually after level four if you’ve been pretty good about beating up on Skarl’s castles, your own castle is rebuilt, which is nice.
One thing that’s very important is that in the high-stack castles like you get after level 3 and level 5, you can’t aim low. If you do, the cannonball will strike your own facility, and you’ll lose the game. To hit front walls, just use less power.