Icewind Dale Game Guide
Level 2 of the palace is not as full of enemies as the first. However, there are a bunch of backstabbing (literally) thieves roaming about, in addition to two of Marketh's bodyguards, his girlfriend, and his cook. Clear the place out in a counterclockwise direction starting with the southwestern room, Fleezum's room.

You can speak with Fleezum, but he'll attack you afterward. He's a powerful melee fighter, but will go down more easily than some enemies you've fought thus far. After he does, be sure to loot both his body and room before returning to the hallway. Next, hit Ginafae's room, just east of this one, if you like. There's nothing of importance that can happen here unless you meet Marketh and don't kill him. If that's the case, you can free Ginafae from Marketh's spell over her with the oil of null effect that you should have retrieved from Malavon's hideout.

Continue on to Flozem's room, and have a Bard speak to him if you have one. You can convince the man to leave Marketh and pursue a painting career (and receive an experience point bonus), using the sketch you got from below. Or, you can just kill him, your choice. Next, check out the northern dining room and kitchen. Be sure to grab the bag of potatoes from the kitchen, as you'll need it shortly. Finally, proceed to Marketh's palace, level 3, using the northeastern stairs.

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You should dispatch Seth in my party's location before taking on Marketh in the room to the west.
The third and final level of the palace is filled with even more shadowy thieves than the second. Clear out the southern half of the level, then enter the northeastern room. These are Seth's chambers, and if you didn't dispatch him at the entrance to the palace, do so now, or he'll show up to help Marketh in a moment. Loot his room, then head over to Marketh's to the west.

Once you meet Marketh (a truly cowardly fellow), you can kill him, let him go in exchange for his badge, or if you have a highly intelligent character, you can let him go in exchange for his badge and items. Let him keep the item that he asks to keep, as it's cursed. (You should now have four of the six lieutenants' badges.) If you let him live, be sure to go back go Ginafae on level 2 and give her the oil of null effect for an experience point reward. Now, let's go back to the main lower Dorn's Deep area through the southern exit of the palace, level 1.

 
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