From the A Ford Across the Skunk River area just head west along the river to follow it as it winds. The next node should be the Overgrown Pool area, and with any luck you may have discovered the Bandit Camp and Ruined Watchtower areas southeast of the Skunk River, too. All in good time. For now, enter the Overgrown Pool area.
You'll find yourself along the northern end of the map, from which head south a short distance to find Lumberjacks led by a man named Corax facing off against a Nixie named Melianse. The Nixie, while outnumbered, does have a trump card in the form of two bewitched Lumberjacks, whose lives she threatens in response to Corax's aggression. Getting drawn into this stalemate starts the quest "Riverbed Nightmare" - which is really the key encounter in this area.
If you pick the [Neutral] option you'll just watch as both sides butcher each other, and Jaethal will show she's a poor gambler, as the Nixie does not, in fact, have a better chance of winning. After Corax and his Lumberjacks defeat their fellows, the Giant Frogs Melianse summons, and the Nixie herself, you can talk to him again and decide to finish what the Nixie started [Chaotic Evil] by attacking the grieving Lumberjacks. Melianse herself has little of interest to loot and Corax has a Greataxe +1.
Alternatively you can pick the dialogue option [Solve the problem with force] "You know what? To hells with it..." after which you'll get the option to attack Melianse, the lumberjacks, or both sides. The first two actions are [Neutral Evil] while the last is [Chaotic Evil]. Resorting to violence hastily in this case is an evil act no matter how you slice it, and considering the rewards, there's not much incentive to do so, you know, save for the joy of killing, experience, and Corax's Greataxe +1.
If carnage and violence doesn't appeal to you, take a more diplomatic approach by picking the dialogue option "What's going on here?", to find out that the conflict has arisen predictably enough. A fey creature's home is being ravaged by some hard-working men with axes, and both sides clearly view each other as an over-bred menace.
Don't bother trying to appeal to the Nixie, she won't even consider disarming by surrendering her captives. Instead pick the dialogue option [Try to reason with the loggers] "Listen to me, guys..." to get a variety of checks where you can attempt to resolve the situation peacefully. These include a [Knowledge (World) 22] check, a [Diplomacy 22] check or an [Intimidate 22] check, the last of which is a [Lawful Neutral] action and a fair assertion of your property rights. Fortunately if you fail at one of these checks, you can attempt another, so unless you're dead-set on a particular outcome you should be capable enough of passing at least one of these checks.
After the lumberjacks have been convinced, you'll have to negotiate with Melianse, who complicates matters by making more demands. It seems the lumberjacks leaving isn't all the Nixie wants, she wants the restoration of the trees they felled. Pick the dialogue option "How are we supposed to restore a tree that's already been cut down?" and she'll tell you to gather some feather tokens, which are made by "your people's mages" or by her cousin - a Dryad named Tiressia, who won't be encountered for quite some time (you'll find her in the "Swamp Witch's Hut" area, but she has her own issues you'll need to resolve, first...). Alternatively, if you're following this guide chronologically, you could have bought A Pouch of Feather Tokens from Bartholomew in the Lone House area.
If you want go the feather route, pick the dialogue option Wait here. I'll bring the feathers which will start the errand Feather Tokens. If you already have them, talk to Melianse again and pick the [Neutral Good] option to give her the feathers, which will earn you a small XP reward.
|Reward: For giving Melianse the Feather Tokens|
If you then decide to be friends with her (a [Chaotic Good] option) you'll gain another small reward.
|Reward: For making friends with Melianse|
|45 XP / Ring|
Once that's done, just talk to Corax and say "I believe I was promised compensation for my efforts." to gain yet asnother reward - this time including money nearly sufficient to defray the cost of the feather tokens.
|Reward: For resolving the lumberjack-nixie dispute|
|45 XP / 400 GP|
If you don't have and can't be bothered to get the feather tokens, there's still options for resolving this quest peacefully. To do so you'll need to pass an [Intimidate 25] check to suggest that Melianse may be pushing her luck too far, or by succeeding at a [Diplomacy 25] check to convince the lumberjacks to do as she says.
If you convince Melianse to drop the last demand, talk to Corax afterwards for a reward, while if you convinced the lumberjacks to get the feather tokens talk to Melianse and pick the [Chaotic Good] option. Either way, the reward is the same.
If you end the conversation without resolving the dispute first (most likely by picking the dialogue option [Leave] "Wait here. I'll bring the feathers."), you'll lose your chance to make the last two checks ([Intimidate 25] and [Diplomacy 25]). If you talk to Corax again you'll get the opportunity to attack Melianse [Neutral Evil] or the lumberjacks [Chaotic Evil]. The same options pop up if you talk to Melianse, save they're both [Neutral Evil] decisions. You'll also have another option, provided you have a character capable of casting Dispel Magic (both Tristian and Harrim should qualify by now). Simply talk to either Corax or Melianse and pick the dialogue option [Use Dispel Magic to free the hostages] "I've lifted the enchantment! You're free!" and you will indeed free the Bewitched Lumberjacks. This provokes a fight, and there's no reward forthcoming from Corax for doing this, so it's hard to recommend it.
Whew. That was an ordeal. In hindsight, maybe the whole carnage and mayhem approach isn't such a bad idea after all... Anyway, to finish up this area search some foliage to the south of the lumberjacks to find a Token of the Dryad. More treasure awaits to the southwest, but you'll need to kill a Dire Wolf and a Ferocious Wolf, first. Once done, pass a [Perception 16] check to find some hidden treasure - a Potion of Barkskin, some baubles and 286 GP - in a tree trunk. With that, it's time to move on.
Assuming you're here before Troll Trouble during the suggested Southern Narlmarches Expedition en route to the Verdant Chambers, we suggest you next stop at the Three-Pine Islet area. It's a bit out of the way, but... you're probably not going to find another reason to come out this way, so you might as well take care of it while you can.