This new area that was marked on your map by Arundel, this is a pretty large area, so be ready to engage in some of the toughest fights yet. As you enter Dragon's Eye, you be attacked by Ice Trolls - Burn them to kill them permanently  (Only Fire or Acid will kill them forever)

Enter the cave and you'll encounter some Lizardmen, easy to kill them off, then go south and find the Captive Villagers, to see where they are, check out the Map below. This map will also show you where all the major locations are.

Area One of Dragon's Eye

Be very careful in many of these areas, because Traps are everywhere towards the end. Have a thief ready with detect traps on.

One of the most dangerous areas is the Lizard Kings 'area'. He is pretty easy to kill, but he's NOT alone - he has a huge contingent of Lizard men and Shamans to help in the battle. What you can do is lure them into a doorway, and pick them off one at a time, while having your mage fire spells into the back of the enemies lines.

The next area you need to watch out in, it can be deadly unless you do it right. You'll see many Trolls - Even though you kill them, they are still alive on the ground, you need to use fire to kill them, be it a spell or a potion, USE them! Some have said that the Sword of Confusion will also kill them because they cannot save vs spell, and die.

In this area, you'll find Wraith spiders, Sword Spiders, Lizardmen and more. Also, there is an area that a small group of Talonite Priests and Priestesses, and Mother Egenia. This is an area you'll need to be careful in. Use Arrows and Spells from afar to take them out.

Before you leave to ender the next location, make sure you go back to the Villagers and free them, sometimes there's a bug that will make them just disappear once you beat the bad guys, so if that's been fixed in the 1.06 patch, you should be okay.

Area Two of Dragon's Eye

As you enter this area, you'll be attacked by a huge Armored Skeleton, Skeleton Archers and lots of Cold Wrights (Also, if you try to rest, it'll be Cold Wrights that will interrupt you) - Resting is VERY hard in this area, 1 in 5 chances will succeed.

Follow the path and have your thief detect traps, because there are a few in this area. You'll make your way to the south east part of the screen/map, and you'll need to be careful here, the 1st thing that will happen is someone will cast a Fog of Death spell right in front of the door to Presio, Presio has a formidable army, so be ready to fight - to SAVE the game too. <g>.  Here is what I did:

I took my thief up (Hidden in shadows ON), got the war of fog removed so I could look into the room and see what I have to deal with. The Army Includes TONS of Poison Zombies, Imbued Wrights, and Presio himself. To see all the important areas on this map, view the map below.

Take out the Poison Wrights first, have the thief uncloak, and lure them to the bridge, kill them, and lure more.. continue until most are dead. take all your fighters into the room, and go directly to Presio, and attack him outright. have your Mage attack from the door, and cast defensive spells on Presio and others. Cleric can also stay back at the door and cast dispel magic (If your party is enchanted with "Fear" or Charmed. Healing Spells, Bless and Prayer are also good. Finally, all are dead and you want to loot the room, beware - Traps are everywhere! Have your thief front and center to disarm them. (3 Traps I believe).

Area Three of Dragon's Eye

On to the next Area, this one is kind of hard once the people reveal themselves. The second you enter this area you'll see a Mage, and he says that this is a Hidden and Secret temple devoted to the God of Peace. Before you do reveal them, walk around and explore the area (All except the east and south east).

Now, rest and regain spells and revive dead party members (if you have some). Now, have your thief open the lock located in the center of the map (a bit north, centered) its the locked door, and they tell you not to enter it. The second you open the door, a group of the "Real" temple followers think you are bad, you explain and they say that these people are posing as the temples people, and so they ask you to help them to kill them all. (Do so, they are spellcasters, and will help greatly).

These false people will turn into Yuan-ti. once they are found out, resting will be impossible on this Map. if you must rest, return to the previous map and risk it.

See the Map below for the Exit to the next area, you CAN rest in the room to the east (in the east-center area of map). Once this area is clear, go for the next area!
 

Area Four of Dragon's Eye

This is the final area in Dragon's Eye, thank the gods huh? <g> ok, follow the hallway north and a little girl will appear and talk cryptically to you, question her. (She is really Yxunomei)

Follow the hallway around and curving, having the Thief front and center to disarm all the numerous traps that are on this map (Mainly in the hallway you are traveling on).
You'll encounter many the little girl many more times, and Yuan-ti and Yuan-ti Archers. also, the more dangerous Yuan-ti Priests. Follow your way around to the final door, disarming the traps (4 here). then prepare to attack Yxunomei. Here's one of the best ways to take care of her:

First off, have your best Weapons (+2 or greater ready on your fighters, and mages at the door ready to cast spells on Yxunomei's small army of Yuan-ti Archers and Priests, have your Cleric cast Haste and Bless on your party before entering as well.

Yxunomei is very magic resistant, so make sure you know that you're hits are landing, but have your mage cast the most damaging spells on her. (Even if some spells hit your party).

Once you take care of Yxunomei, have your thief disarm more traps, and get the Heartstone Gem. Also, most of your party should level up here, because killing Yxunomei will earn your party 46000 Experience Points!

Area Five of Dragon's Eye

Now, you'll go back outside and return to Kuldahar, but the town has been invaded by Neo Orogs. Kill them off, and get to Arundel.

Arundel will reveal that he is a fake, and disappears. walk downstairs and you'll find the 'real' Arundel, near death. Talk with him.

He'll tell you that you now need to go to the area known as "The Severed Hand" and seek out an Elven mage named Larrel,  who is the only one that can operate the Scrying abilities of the Heartstone Gem. What Arundel doesn't know, is that Severed Hand is no longer a peaceful area.....