Battle: Cephal Lorentus
When you arrive you'll be treated to a wonderful scene: numerous corpses floating in a stew of slow-moving water. Lovely. Wonder how many Varnhold citizens float around your feet? Before you move an inch, you'll need to cast Death Ward on your warriors, and buff them up with generic buffs like Haste, Prayer, etc. Keep your squishy characters near the area transition, summon some monsters to the southwest, then send your warriors - but not your summons - even further southwest.
The reason for all this trouble will become apparent soon enough, as a zombie named Cephal Lorentus stands behind two lesser zombies. Names sounds familiar, doesn't it? Don't be fooled by the paltry opposition in front of you, however, as more foes lurk in the water, and will appear when you provoke Cephal Lorentus. For his part, Cephal Lorentus will start out by casting Mirror Image, after which he'll summon a massive host of Zombies and Zombie Lords and content himself by pelting you with Enervation... Just because he wants to be a nuisance.
If you have Death Ward, you should be safe against his energy drain, and his zombies aren't really capable of threatening a warrior with a decent Armor Class - anything in the mid-20s is fairly safe. That being the case, rush Cephal Lorentus and try to kill him before he gets up to too much mischief, then exterminate his zombie horde. When you're done, loot Cephal Lorentus for a Shock Quarterstaff +1, an Amulet of Natural Armor +1 and a Ring of Protection +1.
Navigate the Maze
Don't rest on your laurels, however, as you'll need that Death Ward further on. Chop, chop! Continue west until you find some stonework to the southwest, which at the very least promises some solid ground beneath your feet. On this stonework you'll find a switch, which will open a door to the southwest. Open the door, enter the chamber beyond, kill two cyclopes then loot a sarcophagus and a container.
Continue down a passage to the southeast, disarm a trap, descend some stairs, then flip a switch on the floor to open a nearby door. Beyond this door you'll find a greater zombie cyclops, which shouldn't be too much trouble to simply gang up on and cut down.
Beyond this massive cyclops is a maze of sorts. Some devious mind clearly wanted to cram as much walking into as little space as possible. Despite that, the path is fairly linear for a while, so proceed until you reach a fork at which you'll have the option to turn northwest or southeast. Turn southeast first, disarm a trap, loot a container, activate a switch, then return to the fork and explore northwest.
The Central Passages
Follow the linear path ahead until you reach another fork, at which point you can continue heading northeast, or veer northwest. Head northwest first, and, if you flipped the switch earlier in the maze this path should terminate at an open door. Head through the door, up some stairs and kill a greater zombie patrolling the hallway. Once that's done you have another fork to consider - turn northwest or continue northeast.
Subdue the suspense, if you continue northeast you'll find a wall panel you can loot and a circular chamber (very much like the one which may have made Tristian uneasy on the floor above) with another container in it. Go northwest to find a room with a button and a container in it... and a trap which consumes more of the center of the room.
Disable the trap, activate the switch, loot the container, then head down a tunnel to the north. Along the way you'll find - surprise - more cyclopes. This group includes two warriors, a greater warrior and a cleric. Dispose of them, then continue north to reach the room they guarded, in which you'll find a container you can loot and a door to the west, which should have been opened by the switch in the previous room. Alas, another sealed door waits behind the first one. Looks like you'll have to return to the maze after all.
The Fate of Willas Gunderson
Return to the maze and follow the unexplored northeastern path, which eventually terminates at a door. Disarm the trap near the door, then activate a switch to open it. Head southeast through a door and descend some stairs until the hallway bends northeast. At this fork, pass a [Perception] check to notice that the southeastern wall is, in fact, a secret door. Open the secret door to find a small chamber filled with several containers, one of which holds the Cloak of the Winter Wolf which, if your character bites in combat is pretty damn good. Unfortunately that's a pretty narrow niche.
Return to the hallway and continue northeast, stopping to loot a wall panel along the way. At the end of this passage you'll find a perpendicular hallway running northwest/southeast. In this hallway you'll find the ghost of Willas Gunderson, who shouts at you before fleeing to the northwest. Guess you'd better go after him...
Head down the hallway to the northwest, where it won't be long until opposition rears its face in the form of zombies - both human-sized and cyclops. The latter are more aggressive, whereas the lesser zombies aren't always terribly inclined to participate in combat. Fight your way northwest in a chamber, then turn northeast and cut your way through irregularly spaced hosts of zombies. Save the looting for later, however, as you'll want to ensure your Death Ward remains in effect.
When you reach the northeastern end of these chambers you'll find Willas Gunderson, who isn't as cowardly in death as he was in life. Naturally, being a specter means that he, too, can inflict Negative Energy Levels, which you're hopefully immune too. Gunderson isn't an otherwise impressive combatant, and once he's wounded he'll surrender. Question Willas Gunderson and he'll tell you about the fate of Varnhold and its citizens, the petty bauble that doomed the city to fall, and of course, of the role he played in it. He'll also tell you some interesting information about this Vordakai, which is apparently an ancient cyclopean lich.
Exhaust his dialogue option, then make a moral choice concerning his fate. [Lawful Good] promises vengeance, [Lawful Neutral] condemns Willas Gunderson, [Lawful Evil] attacks the tormented ghost and [Neutral] leaves without offering up judgment. If your protagonist is [Good], however, you can forgive him, which is perhaps a touch more mercy than he deserved. Then again, what good are grudges held against the dead?
Do as you will with Willas Gunderson, but don't dwell on matters long. As far as undead go, he's the least of your worries. More zombies will pop up in the chamber, southwest of where Gunderson is, and they'll be joined by a host of Specters. Move your squishy characters to the northeast so they're behind your tanks, cast general buffs like Haste and Prayer, and have your warriors focus on the Specters, as their Energy Drain makes them the greater threat.
Continue southwest, but don't lower your guard, as two more hosts of undead challenge your flight, including at least half-dozen more Specters. When you reach the southwestern-most chamber, loot the containers to the northwest, then go back down the tunnel to the southeast.
The Last Supper
Return back southeast to reach the last fork, then continue southeast to find your path terminated by two doors. The one to the southeast is currently unyielding, so press a floor switch to open the northeastern door. Beyond you'll find the lively scene of many zombies feasting merrily away - the remains of the residents of Varnhold, according to Willas Gunderson.
Head inside with your tank - and only your tank - while you keep the rest of your characters in a defensive line at the door. With your lone, brave tank, venture into the dining room under the zombie rouse from their meal, at which point flee back to your party and prepare to receive the zombie horde. There are a lot of foes, but they're not terribly strong, so you shouldn't have any trouble cutting them down. Honestly, however, this is one of the few instances where a silly, explosive, area-of-effect spell like Fireball can really shine.
Exterminate them how you will, then enter the chamber and kill any stragglers. There's always one goofball who gets stuck between the tables, not to mention those gluttons who refuse to venture from their tales along the northeastern end of the hall.
When the citizens of Varnhold have had their final supper, explore to the northwest to find a switch. Disarm the trap around it, then press the switch to open the door back at the northern end of the area, the second of a series of two sealed doors which previously remained defiant.
You're almost done with this dungeon, but a little backtracking never hurt anybody, right? Make your way back to the previous sealed door and when you reach the adjoining room, spell buff. Include staples like Haste, Greater Invisibility, Prayer and Stoneskin, but also consider adding Delay Poison. Beyond the doors to the northwest you'll find golems. Two Iron Golems and a Golden Golem, to be specific.
While their Armor Class is only good (instead of prohibitively high), they make up for this with exceptional Damage Reduction... which you likely have no means of overcoming. At DR 15/adamantine, even your critical hits will only do marginal damage. They are under no such handicap, of course, dealing twenty or more damage per hit and easily hitting all but the most sturdy of tanks. The Golden Golem is even worse, dealing more damage, hitting with greater frequency and sporting a higher Armor Class. If that's not bad enough, the golems can also spew out poisonous mist. The only upside is, the mist has a relatively low Fortitude DC.
If you can defeat these foes, loot the containers in the room beyond to find the Royal Gift, a Dueling Sword +3 with the "Keen" property, and Bladeguard, a Buckler +3 that gives its wielder an additional +3 bonus to Armor Class against melee foes.
Battle: Ancient Water Elementals
Return to the banquet hall and proceed up the stairs along the northwestern end of the room. After ascending them, head down a hallway to the northeast, which bends north. Disarm several traps as you go and when the corridor ends at a door, spell buff. For this fight, mainstays like Haste, Prayer, Stoneskin and Burst of Glory should suffice, but you should throw in Resist Energy, Communal (Cold). When you're ready, activate a switch and enter the room beyond.
In the large chamber on the other side of the door you'll find two Ancient Water Elementals waiting for you. These massive beasts, water-incarnate, surprisingly don't hit terribly hard, but they can inflict their foes with the freezing status. This will reduce their Hit Points every round should they fail a Fortitude Save, and is a persistent hazard you'll have to endure (hence the Resist Energy, Communal). Other than that, they of course have Damage Reduction 10/-, greatly retarding your offense, and their Armor Class isn't terrible either.
When you provoke them, retreat back through the door and wait for one to come to you. With any luck, it may prevent its partner from attacking, but at the very least it'll protect your squishy characters, allow you to withdraw warriors for healing, and prevent flanking. When you cut one down, don't celebrate too much, as another will spawn behind it. So, too, for the second. You'll have to kill a total of four of these foes, including the two that were waiting for you initially.
Rest up and prepare as best you can. The common buffs you're used to will all be worth-while casts, but be sure to add Remove Fear, Death Ward and Remove Paralysis to your arsenal, if they're not already. Spellbuff as completely as you ever have before, including Bull's Strength, Bless, Shield of Faith, Prayer, Greater Invisibility, Stoneskin... everything you can think of. When you're ready, flip a switch in the northern corner of the room to open the door to Vordakai's lair.
When you approach you'll be subjected to Vordakai's fear aura, which has a high enough Will DC that your warriors have little chance of resisting it - you'll just have to suffer through the fight with the penalties. Approach Vordakai - who is accompanied by his pet, Horagnamon, and engage in some banter. It doesn't really matter what you say, a fight is inevitable.
As soon as the fight begins, charge Horagnamon, as the bird will heal its master and prove a nuisance for as long as it's alive. Plus, it's by far the easiest of the two targets to cut down. With any luck you'll dispose of the bird quickly, after which turn your attention to Vordakai, making sure to flank him. His Armor Class isn't terribly high, but his Damage Reduction will slow down your warriors. He's not as sturdy as some foes you've fought, however, and it's quite possible that a lucky rush could result in a surprisingly quick fight.
For his part, Vordakai will start out by casting Shield to boost his Armor Class, followed by Finger of Death, four Boneshatter spells, some Fear spells, and finally endless bouts of Paralyzing Touch. Paralyzing Touch sound less dangerous than it actually is, as the effect is permanent unless dispelled via Remove Curse or Remove Paralysis. On top of that, it can be inflicted with a touch attack (your warriors have little defense against this) and deals damage every turn unless cured. The only positive is that its Fortitude DC isn't stupendously high, so there's a good chance any warrior worth the title will resist several attacks.
If you brought Tristian along with you, halfway through the fight you'll witness a scene involving him which will negatively influence both you and Vordakai. Afterwards the fight with resume where you left off, but with one glaring omission. Suffice to say, having a backup divine spellcaster may come in handy, and you were warned to bring one. If you finish the final stage of the battle with characters permanently paralyzed and with no way to remove the debuff you'll just have to let them die.
Varnhold Vanishing: Aftermath
Defeat Vordakai, after which more dialogue will ensue. Your choices here are basically limited to exposition and determining the face of Vordakai. If your protagonist is [Evil], you can attempt to lure the proud lich into your service... offering Maegar Varn as a host. Otherwise you'll get the genuine article.
Once that decision is made, loot Vordakai's mortal remains to obtain a Headband of Mental Perfection +4, an Amulet of Natural Armor +2, a Ring of Protection +1 and the Shroud of Abaddon. Nearby containers also contain notable loot like the Arcane Enforcer and a Fallen Warrior's Flask. The latter is merely of interest to an antiquarian, while the former is a Dueling Sword +3 that deals an additional 1d6 damage.
When you're done looting, make your way to the west of Vordakai's throne to find a passage running north. Hit a switch to open a door, then head on through for an Illustrated Book Episode. This isn't a complicated one, you need merely make a [Neutral Good] or [Neutral Evil] choice regarding what to do with some soul jars. Do as your whims demand, then you'll find yourself in the tunnels near where the Varnhold citizens were having their feast. The door to the southeast is now finally open, and beyond it lies freedom.
Before you can taste sweet daylight, however, Maegar Varn finds himself capable of chatting... assuming you didn't give his mortal coil to some wretched cyclopean lich. As appealing as having a lich adviser, Maegar's own offer isn't half bad. Not only will you gain a good bonus to several kingdom stats, but Maegar Varn will swear fealty to you, recognizing your authority and benevolence as superior to that of the absent Swordlords who left him to rot. Lich or no, looks like you're getting yourself a new adviser either way.